financial report 2019/2020 - avant

Financial Report2019/2020

Avant Mutual Group Limited / Annual Financial Report 30 June 2020

Avant Mutual Group Limited is a company limited by guarantee, incorporated and domiciled in Australia. Its registered office and principal place of business is Level 6, Darling Park 3, 201 Sussex Street, Sydney, NSW 2000, Australia.

The financial report was authorised for issue by the Directors on 3 September 2020.

The Company has the power to amend and reissue the financial report.

Avant Mutual Group Limited ABN 58 123 154 898

(A company limited by guarantee)

Table of contentsDirectors’ report 1

Auditor’s independence declaration 7

Consolidated statement of comprehensive income 8

Consolidated balance sheet 9

Consolidated statement of changes in equity 10

Consolidated statement of cash flows 11

Notes to the financial statements:

Note 1 About this report 12

Note 2 Reconciliation of profit after income tax to net cash flows from operating activities 15

Note 3 Investing activities 16

Note 4 Underwriting activities 20

Note 5 Other operating activities 32

Note 6 Financial risk management 38

Note 7 Capital management 44

Note 8 Income tax 47

Note 9 Property and equipment 50

Note 10 Intangible assets 51

Note 11 Equity 54

Note 12 Remuneration of key management personnel 55

Note 13 Remuneration of auditors 56

Note 14 Events occurring after the reporting period 57

Note 15 Contingent liabilities 57

Note 16 Summarised financial data of the ultimate parent entity 58

Note 17 Investments in controlled entities 59

Note 18 Related parties 60

Note 19 Business combination 62

Directors’ declaration 64

Independent auditor’s report 65


1

Directors’ reportThe Directors present their report on the Group consisting of Avant Mutual Group Limited (“the Company”) and the entities it controlled at the end of, or during, the year ended 30 June 2020.

Directors

The following persons were Directors of the Company during the financial year ended 30 June 2020 and up to the date of this report:

• Dr Beverley Rowbotham AO (Chair)1

• Mr Peter Beck

• Dr Jan Dudley

• Dr Gillian Farrell2

• Dr William Glasson AO

• Dr Steven Hambleton

• Mr Peter Polson

• Dr Douglas Travis

• Mr Duncan West3

1 Dr Beverley Rowbotham AO was appointed as Chair effective 1 July 2019.

2 Dr Gillian Farrell was appointed as director effective 21 November 2019.

3 Mr Duncan West was appointed as director effective 21 November 2019.

Prof Simon Willcock was a director from the beginning of the financial year until his retirement on 21 November 2019. He also resigned as Chair effective 1 July 2019.

The Hon John Fahey was a director from the beginning of the financial year until his resignation on 21 November 2019.

Principal activities

The principal activities of the Group during the year consisted of the protection, support and safeguarding of the reputation and interests of its members and policyholders.

The wholly owned controlled entity, Avant Insurance Limited (“AIL”), performs the function of an insurer for the professional indemnity risks of the members of the Company. This involves the underwriting of medical and health malpractice and legal expenses insurance policies. AIL also distributes Business Package insurance products and undertakes investment activities related to its insurance activities.

The wholly owned controlled entity, Doctors Financial Services Pty Limited (“DFS”), allows the Company to provide its members and their employees and families with general and personal financial advice on life insurance (death cover, TPD, trauma and income protection and business expense), superannuation, deposits, managed investments and securities.

The wholly owned controlled entity, The Doctors’ Health Fund Pty Ltd (“DHF”), allows the Company to provide its members and their employees and families with access to the DHF market leading suite of health insurance products.

The wholly owned controlled entity, Avant Group Holdings Limited (“AGHL”), acts as the holding company within the Group and manages the investment activities of the Company’s capital reserves.

The wholly owned controlled entity, MyPractice Manual Pty Ltd (“MPM”) provides an online practice management platform that integrates best practice policies and procedures, task management, a secure document management system including a templates library, personalised training and compliance modules and customisable registers.

Dividends paid or recommended

During the year the Board declared dividends under the Retirement Reward Plan (RRP) totalling $9,480,927 to eligible retiring members. These were the dividends determined under the RRP, and this marked the fifth time the Board has determined to pay franked dividends to members.

Review of operations

The Group’s result for the year ended 30 June 2020 is a net loss after tax of ($14,625,548) (2019: net profit after tax of $65,049,943). The total members’ accumulated equity as at 30 June 2020 is $1,226,536,494 (2019: $1,251,402,709).

Directors’ report30 June 2020


2

Directors’ report (continued)Retirement Reward Plan

The Company is proud of its Retirement Reward Plan which rewards eligible members for their loyalty to the Group by way of a dividend upon permanent retirement from medical practice.

During the year the Company resolved to notionally contribute an additional $24,523,750 to the RRP in respect to the year ended 30 June 2019. This brings the total assets notionally allocated to the RRP of $357,087,665 as at 30 June 2020.

Matters subsequent to the end of the financial year

Retirement Reward Plan

For the sixth consecutive year, having considered the financial position and projected outlook for Avant, the Board resolved to notionally contribute a further $25,533,696 to the RRP in respect of the year ended 30 June 2020.

In addition, at that meeting, the Board also resolved to determine dividends and authorise payments for Retirement Reward Dividends totalling $11,268,416 to eligible retiring members. These are the sixth dividends determined under the RRP, and this historically continues the tradition of being the first medical defence organisation in Australia to pay fully franked dividends to members.

Other than those described above, no other matter or circumstance has arisen since 30 June 2020 that has significantly affected or may significantly affect:

i. the operations of the Group in future financial years, or

ii. the results of those operations in future financial years, or

iii. the state of affairs of the Group in future financial years.

Significant changes in the state of affairs

During FY2019-20 the global COVID-19 pandemic caused major disruption to society, the practice of medicine, and financial markets. We have considered the potential impacts of the crisis on our accounts in detail, and believe the accounts are appropriate as stated. The accounts are of course still subject to some uncertainty as always, and where COVID-19 has materially affected this uncertainty we have considered specific allowances for this. More detail is provided in the notes where relevant.

In the opinion of the Directors, other than described above, there were no significant changes in the state of affairs of the Group that occurred during the financial year ended 30 June 2020.

Likely developments and expected results of operations

Further information on likely developments in the operations of the Group and the expected results of operations have not been included in this report because the Directors believe it would be likely to result in unreasonable prejudice to the Group.

Environmental regulation

The Group is not subject to any significant environmental regulation in respect of its activities.

Directors’ report 30 June 2020


3

Directors’ report (continued) Information on Directors

Dr Beverley Rowbotham AO, MBBS (Hons 1) MD, FRACP, FRCPA, FAICD

Experience and expertise

Dr Beverley Rowbotham was elected the Chair of Avant Mutual in July 2019 and is a Director of AGHL, AIL and DHF. She is a clinical and laboratory haematologist and was awarded Officer of the Order of Australia in 2019 for her distinguished service to medicine through roles with professional associations, to pathology and to medical education. She chairs the National Pathology Accreditation Advisory Council and is the long serving past Chair of AMA Federal Council and a past President of the Royal College of Pathologists of Australasia. Dr Rowbotham is an Associate Professor at the University of Queensland and is a Fellow of the Australian Institute of Company Directors.

Avant Directorships

Avant Mutual Group Limited, Avant Group Holdings Limited, Avant Insurance Limited, Avant Foundation Limited, The Doctors’ Health Fund Pty Ltd, The Medical Defence Association of Victoria Limited, Professional Insurance Australia Pty Limited, and United Medical Protection Limited (formerly UMP NSW).

Mr Peter Beck BSc, FIA, FIAA, FSA, FASFA


Mr Peter Beck is an actuary by profession and has over 40 years’ experience in banking, insurance, superannuation and investments working in Australia, New Zealand, Asia, South Africa and the United Kingdom. He was formerly CEO of Pillar Administration, CEO of CommInsure, and Group General Manager, Strategic Development and Group Appointed Actuary at Colonial.

Avant Directorships

Avant Mutual Group Limited, Avant Group Holdings Limited, Avant Insurance Limited and Professional Insurance Australia Pty Ltd.

Dr Jan Dudley MBBS, FRANZCOG, GAICD


Dr Jan Dudley is a Director of AMGL, AGHL and AIL. She is a VMO Obstetrician and Gynaecologist who has over 30 years’ experience working in NSW Health across tertiary public and private hospitals. Dr Dudley is also a Director of The Royal Hospital for Women’s Foundation Board. Dr Dudley has significant governance experience at local hospital level, and was formerly a long standing and highly respected member of Avant’s Medical Expert Committee in NSW. Dr Dudley is a current member of Avant’s NASC. Dr Dudley is a graduate of the Australian Institute of Company Directors.

Avant Directorships

Avant Mutual Group Limited, Avant Group Holdings Limited and Avant Insurance Limited.

Dr Gillian Farrell MBBS, FRACS


Dr Gillian Farrell is a Director of AMGL and AGHL. She is a plastic and reconstructive surgeon at the Cabrini Brighton Hospital in Victoria and at the Peter MacCallum Cancer Centre. She is currently the Chair of the Advocacy and External Relations Committee of the Australian Society of Plastic Surgeons and the Society’s Treasurer. Dr Farrell has significant governance experience and is Clinical Lead on the Australian Breast Device Registry and a member of the Breast Implant related anaplastic lymphoma TGA expert working group as well as the TGA Advisory Committee on Medical devices. She is on the Governance Committee of the Cabrini Breast cancer service.

Avant Directorships

Avant Mutual Group Limited and Avant Group Holdings Limited.



4


Dr William Glasson AO, MBBS (UQ), FRANZCO, FRACS, FRACGP, FRCOphth, DipAppSc(Opt), GAICD


Dr William Glasson is a Director of AMGL and AGHL. Dr Glasson is a practising Ophthalmologist working in urban, rural and regional Australia as well as in East Timor. Dr Glasson is the former Federal President of the Australian Medical Association (AMA) and was awarded the Gold Medal for his services in 2017. As AMA President he led the AMA Presidential Medical Indemnity Taskforce during the medical indemnity crisis of 2005. Dr Glasson is also a former President of the Royal Australian and New Zealand College of Ophthalmologists. He has been awarded an Order of Australia for his services to rural and regional medicine. Dr Glasson has significant skills and knowledge in finance, management and governance. He has served on a number of Boards, including the Medical and Allied Professional Superannuation Fund, Cancer Australia, St John Australia, AMA, Royal Australia and NZ College of Ophthalmologists Board and QLD Urban Indigenous Health.

Avant Directorships


Dr Steven Hambleton MBBS, FAMA, FRACGP (Hon), FAICD


Dr Steve Hambleton is a Specialist General Practitioner and former Federal President of the AMA. He is currently the Deputy Chair of the Primary Health Care Reform Steering Committee and serves on the boards of the Digital Health CRC, the Queensland Aboriginal and Islander Health Council and Mercy Community Services.

Avant Directorships


Mr Peter Polson BCom, MBL, PMD


Mr Peter Polson is a Director of AMGL and AGHL and is the Chair of AIL. He has an extensive background in banking, insurance and financial services. He was formerly Managing Director of Colonial First State Investments, and the Commonwealth Bank Group as Group Executive responsible for all Investment and Insurance Services.

Avant Directorships

Avant Mutual Group Limited, Avant Group Holdings Limited, Avant Insurance Limited (Chair) and Professional Insurance Australia Pty Limited.

Dr Douglas Travis MBBS, FRACS, FAMA GAICD


Dr Douglas Travis is a Urological consultant practising in the public health system in Victoria. He is currently a senior specialist at Western Health in Melbourne having stood down as Director of Surgery and Head of Urology at Melbourne’s Western a few years back. He holds various Board positions including being a Director of AMGL and AGHL and The Doctors Health Fund. Earlier in the year he stood down from being the chair of Better Care Victoria. In 2014, he was appointed by the new Victorian Government to head the Travis Review, a study to increase the capacity of the Victorian public hospital system for better patient outcomes. Dr Travis held the position of AMA Victoria State President 2007-2009 and was Chair of the Federal AMA Audit Committee until 2012.

Avant Directorships


Mr Duncan West ANZIIF (Snr Assoc.), CIP, FCII, BSc (Econ), GAICD


Mr Duncan West is a Director of AMGL, AGHL and AIL. He has over 30 years’ experience in general and life insurance. He has worked in the UK, India and Australia including as CEO of Vero Insurance and CGU Insurance. Most recently he was Executive General Manager of Retail Wealth for NAB. Mr West holds a Graduate Diploma in Business, and a Bachelor of Science in Economics. He is a Senior Associate of the Australia and New Zealand Institute of Insurance and Finance and an honorary life member.

Avant Directorships

Avant Mutual Group Limited, Avant Group Holdings Limited, Avant Insurance Limited, Professional Insurance Australia Pty Ltd.

Directors’ report (continued) Information on Directors


5

Directors’ report (continued) Meeting of Directors

The number of meetings of the Company’s Board of Directors and of each Board committee held during the year ended 30 June 2020, and the number of meetings attended by each Director are set out in the tables below.

Avant Mutual Group Board Group Audit Committee Group Risk Committee

Full meeting Full meeting Full meeting

A B A B A B

Dr Beverley Rowbotham AO (Chair) 7 7 (c) * * * *

Mr Peter Beck 7 7 4 4 (c) 5 5 (c)

Dr Jan Dudley 7 7 * * * *

The Hon John Fahey1 3 3 * * * *

Dr Gillian Farrell 4 4 2 2 3 3

Dr William Glasson AO 7 7 4 4 5 5

Dr Steven Hambleton 7 7 * * * *

Mr Peter Polson 7 7 * * * *

Mr Douglas Travis 7 7 3 4 4 5

Mr Duncan West 4 4 4 4 2 3

Professor Simon Willcock2 3 3 * * * *

Group Investment Committee Remuneration Committee Nominations Committee

Full meeting Full meeting Full meeting

A B A B A B

Dr Beverley Rowbotham AO (Chair) * * 5 5 4 4 (c)

Mr Peter Beck 5 5 * * * *

Dr Jan Dudley 5 5 * * * *

The Hon John Fahey1 2 2 3 3 * *

Dr Gillian Farrell * * * * * *

Dr William Glasson AO * * 2 2 2 2

Dr Steven Hambleton 5 5 * * * *

Mr Peter Polson 5 5 (c) 5 5 4 4

Mr Douglas Travis * * * * * *

Mr Duncan West * * 5 5(c) 4 4

Professor Simon Willcock2 * * 3 3 2 2

A = Number of meetings attended

B = Number of meetings held during the time the Director held office or was a member of the committee in the year.

*Not a member of the relevant committee

(c) = Chairman of the Board/Committee


1 The Hon John Fahey retired as a Director of the Company effective 21 November 2019. The information above represents his attendance at Board and Committee meetings in his capacity as a Director of the Company.

2 Professor Simon Willcock retired as a Director of the Company effective 21 November 2019. The information above represents his attendance at Board and Committee meetings in his capacity as a Director of the Company.


6

Directors’ report (continued) Company Secretary

Throughout the period, Mr Patrick Esplin served as the Group Company Secretary for all Avant group entities and continues in office as at the date of this report.

Proceedings on behalf of the Company

No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings.

No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001.

Insurance of officers

During the financial year, AIL paid a premium to insure certain officers of the Company and its controlled entities. The officers of the Group and its controlled entities covered by the insurance policy include the Directors and the Company Secretary.

Under the terms of the insurance contract, the premium paid and the nature of the cover provided are required to be kept confidential.

Auditor

Deloitte Touche Tohmatsu continues in office in accordance with section 327 of the Corporations Act 2001(Cth).

Auditor’s independence declaration

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 7.

Rounding of amounts

The Company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the ‘rounding off’ of amounts in the Directors’ report. Amounts in the Directors’ report have been rounded off in accordance with the instrument to the nearest dollar.

This report is made in accordance with a resolution of the Board of Directors.

Dr Beverley Rowbotham AO Chair Sydney 3 September 2020



7


8

Consolidated statement of comprehensive incomeFor the year ended 30 June 2020

Note2020

$’million2019

$’million

Gross written premium 377.1 360.2

Unearned premium movement (6.4) (3.0)

Gross earned premium 370.7 357.2

Outward reinsurance premium expense (10.3) (9.1)

Net earned premium (a) 360.4 348.1

Gross claims expense 4(b) (366.8) (307.7)

Reinsurance and other recoveries revenue 4(b) 59.5 39.7

Net claims incurred (b) 4(b) (307.3) (268.0)

Acquisition costs 4(i) (34.1) (31.1)

Other underwriting expenses 4(i) (35.1) (40.5)

Run-off Cover Scheme (ROCS) levy (11.3) (11.2)

Underwriting expenses (c) (80.5) (82.8)

Underwriting result (a) + (b) + (c) (27.4) (2.7)

Investment income – policyholders funds 3(a) 15.9 23.0

Investment expenses – policyholders funds 3(a) (0.7) (0.7)

Net investment income – policyholders funds 15.2 22.3

Insurance (loss)/profit (12.2) 19.6

Other income 5(a) 40.8 28.5

Other operating expenses 4(i) (30.5) (24.2)

Net other income 10.3 4.3

Investment (loss)/income – members funds 3(a) (22.0) 72.3

Investment expenses – members funds 3(a) (7.7) (7.3)

Net investment (loss)/income – members funds (29.7) 65.0

Share of results of associates 3.0 -

Finance costs 5(f ) (0.9) -

Amortisation of intangible assets 10 (0.5) (0.6)

(Loss)/profit before income tax (30.0) 88.3

Income tax benefit/(expense) 8(a) 15.4 (23.3)

(Loss)/profit after income tax (14.6) 65.0

Other comprehensive income after income tax - -

Total comprehensive (loss)/income after income tax (14.6) 65.0

Total comprehensive income for the period attributable to:

Owners of Avant Mutual Group Limited (14.2) 65.3

Non-controlling interests (0.4) (0.3)

(14.6) 65.0

The above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.


9

Consolidated balance sheetAs at 30 June 2020

Note2020

$’million2019

$’million

Assets

Cash and cash equivalents 45.8 39.2

Trade and other receivables 5(b) 111.6 115.3

Investments 3(b) 1,946.8 1,919.8

Reinsurance and other recoveries 4(e) 293.7 278.0

Current tax assets 8(d) - 4.2

Deferred expenses 4(h) 20.9 20.1

Deferred tax assets (net) 8(c) 16.6 -

Right-of-use lease assets 5(f ) 33.1 -

Property and equipment 9 13.2 15.9

Intangible assets 10 8.6 9.1

TOTAL ASSETS 2,490.3 2,401.6

Liabilities

Trade and other payables 5(c) 74.7 80.0

Current tax liabilities 8(d) 2.4 -

Unearned income 4(g) 234.3 228.5

Insurance contract liabilities 4(d) 904.1 824.3

Lease liabilities 5(f ) 36.2 -

Employee related provisions 5(e) 9.9 8.4

Other provisions 5(d) 2.2 1.6

Deferred tax liabilities (net) 8(c) - 7.4

TOTAL LIABILITIES 1,263.8 1,150.2

NET ASSETS 1,226.5 1,251.4

Equity

Reserves 11(a) 54.6 54.6

Accumulated surpluses 11(b) 1,170.6 1,195.1

Capital and reserves attributable to owners of Avant Mutual Group Limited 1,225.2 1,249.7

Non-controlling interests 1.3 1.7

TOTAL EQUITY 1,226.5 1,251.4

The above consolidated balance sheet should be read in conjunction with the accompanying notes.


10

Consolidated statement of changes in equityFor the year ended 30 June 2020

The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

Attributable to owners of Avant Mutual Group Limited

NoteReserves$’million

Accumulated surpluses$’million

Total$’million

Non- controlling

interests$’million

Total$’million

Balance as at 30 June 2018 11 54.6 1,138.3 1,192.9 - 1,192.9

Profit/(loss) for the year - 65.3 65.3 (0.3) 65.0

Other comprehensive income - - - - -

Total comprehensive income for the year - - 65.3 65.3 (0.3) 65.0

Non-controlling interest on acquisition of subsidiary - - - 2.0 2.0

Retirement reward dividend/payments - (8.5) (8.5) - (8.5)

Transaction with owners in their capacity as owners - (8.5) (8.5) 2.0 (6.5)

Balance as at 30 June 2019 11 54.6 1,195.1 1,249.7 1.7 1,251.4

Adjustment on adoption of new accounting standards 5(f ) (0.8) (0.8) (0.8)

Balance as at 1 July 2019 11 54.6 1,194.3 1,248.9 1.7 1,250.6

Loss for the year - (14.2) (14.2) (0.4) (14.6)

Other comprehensive income - - - - -

Total comprehensive loss for the year - - (14.2) (14.2) (0.4) (14.6)

Retirement reward dividend/payments - (9.5) (9.5) - (9.5)

Transaction with owners in their capacity as owners - (9.5) (9.5) - (9.5)

Balance as at 30 June 2020 11 54.6 1,170.6 1,225.2 1.3 1,226.5


11

Note2020

$’million2019

$’million

Cash flows from operating activities

Premium and subscription income received 407.0 381.1

Reinsurance premium paid (10.1) (9.3)

Claims paid 4(d) (287.0) (270.4)

Reinsurance and other recoveries received 4(d) 43.8 42.0

Run-off Cover Scheme paid (11.4) (11.2)

Interest received 23.2 25.8

Sundry income 12.5 8.7

Income tax received/(paid) 1.2 (37.8)

Underwriting and administrative expenses paid (100.0) (96.0)

Net cash inflows from operating activities 2 79.2 32.9

Cash flows from investing activities

Purchase of investments (230.3) (474.8)

Proceeds from sale of investments 131.6 354.8

Dividends and distributions received 47.3 57.6

Acquisition of a subsidiary, net of cash acquired 19(b) - (2.2)

Purchase of fixed assets and intangibles (2.2) (4.1)

Payments for shares acquired (2.8) (1.8)

Net cash outflows from investing activities (56.4) (70.5)

Cash flows from financing activities

Lease payments 5(f ) (6.7) -

Retirement reward dividend payment (9.5) (8.5)

Net cash outflows from financing activities (16.2) (8.5)

Net movement in cash and cash equivalents 6.6 (46.1)

Cash and cash equivalents at the beginning of the year 39.2 85.3

Cash and cash equivalents at the end of the year 45.8 39.2

Consolidated statement of cash flowsFor the year ended 30 June 2020

The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.


12

Notes to the financial statements30 June 2020

Note 1. About this reporta) Basis of preparation

This Financial Report is a general purpose financial report which:

i. has been prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB), International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and the Corporations Act 2001. The financial statements are for the Group consisting of the Company and its subsidiaries. The Company is a for-profit entity for the purpose of preparing the financial statements;

ii. has been prepared on a historical cost basis as modified by certain exceptions, the most significant of which are the measurement of investments and derivatives at fair value and the measurement of the net outstanding claims liability at present value;

iii. has required the use of certain critical accounting estimates and management judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where judgments and estimates are significant to the financial statements have been disclosed in the relevant note under critical estimates and judgements;

iv. includes comparative amounts;

v. is in Australian dollars which is the Group’s functional and presentation currency; and

vi. is presented with values rounded to the nearest million dollars, or in certain cases, to the nearest thousand dollars in accordance with ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191.

The consolidated financial statements are for the Group consisting of the Company and the entities it controlled during the year. A list of entities controlled by the Company at year end is contained in note 17. The financial statements of controlled entities are prepared for the same reporting period as the ultimate parent entity.

In preparing the consolidated financial statements all transactions between controlled entities are eliminated in full. Where control of an entity commences or ceases during a financial year, the results are included for the part of the year during which control existed.

b) Accounting policies

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out in the note to which they pertain. These policies have been consistently applied to all years presented.

i. New and amended accounting standards adopted by the Group

The Group adopted the following new or revised accounting standards which became effective for the annual reporting period commencing on 1 July 2019:

Standard/amendment

AASB 16 Leases and related amending standards

AASB 2017-7 Amendments to Australian Accounting Standards – Long-term Interests in Associates and Joint Ventures

AASB 2018-1 Amendments to Australian Accounting Standards – Annual Improvements 2015-2017 Cycle

AASB Interpretation 23

Uncertainty over Income Tax Treatments and AASB 2017-4 Amendments to Australian Accounting Standards – Uncertainty over Income Tax Treatments

AASB 15 Revenue from Contracts with Customers and related amending Standards*

AASB 1058Income of Not-for-Profit Entities and AASB 2016-8 Amendments to Australian Accounting Standards – Australian Implementation Guidance for Not-for Profit Entities

AASB 2019-6 Amendments to Australian Accounting Standards – Research Grants and Not-for-Profit Entities

* This is mandatory for the first time for Avant Foundation only being a not-for-profit entity. This have been applied by the other entities in previous period.

Except for AASB 16, none of the amendments to standards that are mandatory for the first time for the financial year beginning 1 July 2019 affected any of the amounts recognised in the current period or any prior period and are not likely to affect future periods.

Refer to Note 5(f ) for the result of the adoption of AASB 16.


13

Notes to the financial statements (continued)30 June 2020

Standard/amendment

AASB 9 Financial instruments and related amending standards**

Note 1. About this report (continued)b) Accounting policies (continued)

ii. New and amended accounting standards not yet adopted by the Group

**AASB 9 was issued during 2014 and replaces AASB 139 Financial Recognition and Measurement. This standard is effective for annual reporting periods beginning on or after 1 January 2018. AASB 9 includes revised guidance on the classification and measurement of financial instruments, including a new expected credit loss (“ECL”) model for calculation of impairment on financial assets. It also carries forward guidance on recognition and derecognition of financial instruments from AASB 139.

The Group has not yet adopted this standard as it elected to apply the option of temporary exemption from AASB 9 that was provided in AASB 2016-6.

AASB 2016-6 was published in October 2016 which provides an option of temporary exemption from AASB 9 for entities that meet certain requirements (applied at the reporting entity level) and this was followed by the issuance of AASB 2017-3 which amends AASB 4 to ensure that the relief available in AASB 2016-6 can be applied by entities who meet the qualifying criteria.

The Group has assessed the applicability of the exemption and concluded that it meets the necessary requirements to defer the adoption of AASB 9 (i.e. the Group’s activities are predominantly connected with insurance) to 1 January 2021 at the latest. During the year, AASB 17 has an Exposure Draft open for comment proposing to extend the date of initial application by one year to annual periods beginning on or after January 2022. As such, AASB 9 will be adopted together with AASB 17 on the latter’s effective date.

The adoption of AASB 9 changes the Group’s accounting for impairment losses for financial assets by replacing AASB 139’s incurred loss approach with a forward-looking ECL approach. AASB 9 requires an allowance to be recognised for ECLs on other debt financial assets not held at fair value through profit or loss (“FVTPL”). ECLs are based on the difference between the contractual cash flows due in accordance with the contract and the cash flows that are expected to be received. The shortfall is then discounted at an approximation to the asset’s original effective interest rate.

The Group has undertaken an assessment of the impact to classification and measurement and the accounting for impairment losses under the new standard below:

• The Group’s investments, except investments in controlled entities and associates, are currently designated as at fair value through profit or loss on initial recognition and are subsequently measured to fair value at each reporting date, reflecting the business model applied by the Group to manage and evaluate its investment portfolio. Under this business model, the adoption of AASB 9 is not expected to result in significant changes to accounting for investments;

• The Group’s other financial instruments (i.e. receivables and payables) are held at amortised cost. Under the current business model, the adoption of AASB 9 does not materially change the accounting for other financial instruments;

• For Trade and other receivables, the Group will adopt the simplified approach to calculate ECLs based on lifetime expected credit losses. A provision model will be established based on historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. There is currently no indication that a material lifetime expected credit loss would be recognised upon initial adoption of the standard.


14

Notes to the financial statements30 June 2020

Note 1. About this report (continued)b) Accounting policies (continued)

iii. New accounting standards and amendments issued but not yet effective

Standard/amendmentEffective for annual reporting periods beginning on or after

AASB 17 Insurance Contracts 1 January 2021***

AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between and Investor and its Associates [AASB 10 & AASB 128], AASB 2015-10 Amendments to Australian Accounting Standards – Effective Date of Amendments to AASB 10 and AASB 128 and AASB 2017-5 – Amendments to Australian Accounting Standards – Effective Date of Amendments to AASB 10 and AASB 128 and Editorial Corrections

1 January 2022 (Editorial corrections in AASB 2017-5 apply from 1 January 2018)

AASB 2018-6 Amendments to Australian Accounting Standards – Definition of a Business 1 January 2020

AASB 2018-7 Amendments to Australian Accounting Standards – Definition of Material 1 January 2020

AASB 2019-1 Amendments to Australian Accounting Standards – References to the Conceptual Framework 1 January 2020

AASB 2019-3 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform 1 January 2020

AASB 2019-4 Amendments to Australian Accounting Standards – Disclosure in Special Purpose Financial Statements of Not-for-Profit Private Sector Entities on Compliance with Recognition and Measurement Requirements

30 June 2020

AASB 2019-5 Amendments to Australian Accounting Standards – Disclosure of the Effect of New IFRS Standards Not Yet Issued in Australia

1 January 2020

*** AASB 17 Insurance Contracts

On 30 July 2020 the AASB has announced an amendment to AASB 17 confirming the effective date of 1 January 2023. The Group has not formally assessed the impact of AASB 17 as at 30 June 2020 but it is anticipated that an initial assessment of the effects of AASB17 will be undertaken during the next financial year.

The Australian accounting standards and amendments detailed in the previous table are not mandatory for the Group until the operative dates stated above, although early adoption is permitted. The Group has not early adopted.

There are no other standards that are not yet effective and that are expected to have a material impact on the Group in the current or future reporting periods and on foreseeable future transactions.


15

Note 2. Reconciliation of profit after income tax to net cash flows from operating activities


2020 $’million

2019 $’million

(Loss)/profit after income tax (14.6) 65.0

Depreciation and amortisation – property and equipment and intangibles 4.7 4.5

Depreciation of right-of-use assets 6.1 -

Change in fair value of investments held at fair value through profit or loss 79.5 (27.2)

Dividends and distributions received net of franking credits (49.3) (40.4)

Share of profit of associates (3.0) -

Write down of fixed assets 0.7 0.2

Decrease/(increase) in:

Receivables 3.7 (14.2)

Reinsurance and other recoveries (15.7) 2.3

Deferred expenses (0.8) (0.6)

Current tax assets 1.8 (27.8)

Deferred tax assets/liabilities (24.0) 10.4

Increase/(decrease) in:

Insurance contract liabilities 79.8 37.3

Unearned income 5.8 13.5

Employee related and other provisions 2.1 0.7

Other operating liabilities 2.4 9.2

Net cash inflows from operating activities 79.2 32.9

Overview

AASB 1054 Australian additional disclosures requires a reconciliation of profit and loss after income tax to cash flows from operating activities.


16

Note 3. Investing activities


How we account for the numbers

Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with maturities of three months or less that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value.

Investments at fair value through profit or loss (“FVTPL”)

Measurement of investments at FVTPL

Both at initial recognition, and subsequently at each balance sheet date, the Group measures its investments classified as financial asset at FVTPL at its fair value.

Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the statement of comprehensive income within investment income/(loss) in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income when the Group’s right to receive payments is established. Interest income from these financial assets is recognised in the period in which it is earned and is included in the investment income/(loss).

Measurement of fair value

The fair value of financial instruments is measured and disclosed as per requirements of AASB 13 Fair value measurement which uses a hierarchy of inputs for the determination of fair value. Level 1 financial instruments are those traded in active markets (such as trading securities), and fair value is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price.

The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at the end of each reporting period. Quoted market prices or dealer quotes for similar instruments are used to estimate fair value for fixed interest securities for disclosure purposes. The Group values unlisted unit trusts using pricing provided by the responsible entity or management company of the trust. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. These instruments are included in level 2.

In circumstances where a valuation technique for these instruments is based on significant unobservable inputs, such instruments are included in level 3.

Overview

AASB 139 Financial Instruments: Recognition and measurement specifies how an entity should classify and measure its financial assets and liabilities. Financial assets are measured either at amortised cost or fair value.

The fair value of financial assets and financial liabilities must be estimated for recognition and measurement.

AASB 7 Financial Instruments: Disclosures requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:

Level 1 quoted prices (unadjusted) in active markets for identical assets or liabilities,

Level 2 inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices), and

Level 3 inputs for the asset or liability that are not based on observable market data (unobservable inputs).

AASB 128 Investments in Associates and Joint Ventures sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures.


17


Critical accounting estimates and judgements

The Directors have reviewed all of the Group’s existing financial assets in line with the requirements of AASB 139 and have assessed that all financial assets are measured at fair value through profit and loss with the exception of investments in associate which are accounted using equity method.

Note 3. Investing activities (continued)

How we account for the numbers (continued)

Investments at fair value through profit or loss (“FVTPL”) (continued)

Recognition and derecognition

Purchases and sales of financial assets are recognised on trade date – the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

Investments in associates

An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.

Investment in associate is accounted for using equity method. Under this method, an investment in associate is recognised initially in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group’s share of the profit or loss and other comprehensive income of the associate. When the Group’s share of losses of an associate exceeds the Group’s interest in that associate (which includes any long-term interests that, in substance, for part of the Group’s investment in associate), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.

An investment in associate is accounted for using equity method from the date on which the investee becomes an associate. On acquisition of the investment in an associate, any excess of the cost of the investment over the Group’s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired.

The Group discontinues the use of the equity method from the date when the investment ceases to be an associate. When the Group retains an interest in the former associate and the retained interest is a financial asset, the Group measures the retained interest at fair value at that date and the fair value is regarded as its fair value on initial recognition.

When the Group reduces its ownership interest in an associate but the Group continues to use the equity method, the Group reclassifies to profit or loss the proportion of the gain or loss that had previously been recognised in other comprehensive income relating to that reduction in ownership interest if that gain or loss would be reclassified to profit or loss on the disposal of the related assets or liabilities.

When the Group entity transacts with an associate of the Group, profits or losses resulting from the transactions with the associate are recognised in the Group’s consolidated financial statements only to the extent of interests in the associates that are not related to the Group.

Impairment

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset, group of financial assets or the Group’s investment in an associate is impaired. A financial asset, group of financial assets or investment in an associate is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.


18

a) Investment income and expenses

2020 $’million

2019 $’million

Investment (loss)/income:

Interest 22.9 25.9

Distributions from unit trusts 47.1 37.9

Dividends from equities 3.4 4.3

73.4 68.1

Change in fair value of investments (79.5) 27.2

Total investment (loss)/income (6.1) 95.3

Investment income – policyholders’ funds 15.9 23.0

Investment income – members’ funds (22.0) 72.3

Total investment (loss)/income (6.1) 95.3

Investment expenses – policyholders’ funds (0.7) (0.7)

Investment expenses – members’ funds (7.7) (7.3)

Total investment expenses (8.4) (8.0)




19


b) Investments

The following tables represent the Group’s assets measured and recognised at fair value, by level of fair value measurement hierarchy:

As at 30 June 2020Level 1

$’millionLevel 2

$’millionLevel 3

$’millionTotal

$’million

Investments at fair value through profit or loss:

Fixed interest securities 76.8 647.6 - 724.4

Unit trusts 50.8 1,082.3 - 1,133.1

Equities 68.4 - - 68.4

196.0 1,729.9 - 1,925.9

Investment in associates* 20.9

Total investments 1,946.8

Current investments 221.9

Non-current investments 1,724.9

1,946.8

As at 30 June 2019Level 1

$’millionLevel 2

$’millionLevel 3

$’millionTotal

$’million

Investments at fair value through profit or loss:

Fixed interest securities 57.2 597.4 - 654.6

Unit trusts 8.9 1,173.3 - 1,182.2

Equities 67.9 - - 67.9

134.0 1,770.7 - 1,904.7

Investment in associates* 15.1

Total investments 1,919.8

Current investments 229.4

Non-current investments 1,690.4

1,919.8

Name of associate Principal activityPlace of incorporation and principal place of business

Proportion of ownership interest and voting rights held by the Group

2020 2019

NobleOak Life Limited Life insurer Sydney, Australia 25.47% 25.52%

KA JV Pty Ltd Specialist lending broker Melbourne, Australia 45.00% -

There were no investments valued within the level 3 fair value hierarchy as at 30 June 2020 and 30 June 2019.

* Details of associates



20


Note 4. Underwriting activitiesa) Insurance contract revenue


Premium revenue

Premium revenue charged to policyholders excludes taxes collected on behalf of third parties. The earned portion of premiums written is recognised as revenue. Premiums are earned from the date of attachment of risk and recognised over the policy period based on time, which is considered to closely approximate the pattern of risks undertaken. The portion of premium received or receivable not earned in the statement of comprehensive income at the reporting date is recognised in the balance sheet as an unearned premium liability.

Loyalty Reward Plan

AIL operates a loyalty reward plan to reward members of the Company for their loyalty whilst financial performance is strong. The loyalty reward is delivered through a deduction to premium before taxes upon renewal of the insurance policy. The loyalty reward is offset against premium revenue and is recognised over the period of insurance policy in line with premium revenue. The portion of the loyalty reward not earned in the statement of comprehensive income at the reporting date is recognised in the balance sheet as part of the unearned premium liability.

Run-off Cover Scheme

The Medical Indemnity (Run-off Cover Support Payment) Act 2004 imposes an annual levy on medical indemnity insurers to fund the Run-off Cover Scheme (ROCS). The levy is a percentage of premiums received by the insurer during the contribution year. The levy rate applicable to AIL is 5% and its contribution year is the year ending on 31 May. Premium charged in relation to ROCS is included in premium written and recognised as part of premium revenue. A ROCS expense is recognised in AIL on the acceptance of the risk that results in the requirement to pay the tax. The expense is recognised on the same basis as the recognition of the earned premium.

Premium Support Subsidy

The Medical Indemnity Act 2002 establishes a Premium Support Subsidy (PSS) for policyholders whose insurance costs exceed a set proportion of their gross income. AIL is responsible for administering the subsidy and in this role it obtains details of estimated gross income to determine that portion to be collected from Medicare Australia. In subsequent years, AIL obtains actual gross income details from policyholders and either collects monies from policyholders for reimbursement to Medicare Australia or seeks additional subsidies from Medicare Australia to be passed through to the policyholder. Amounts due to and from Medicare Australia and the policyholders are recognised in the balance sheet as receivables and presented as part of premium and subscription debtors in Note 5(b).

Reinsurance service expense

Premiums ceded to reinsurers are recognised as an expense in accordance with the pattern of reinsurance service received. Reinsurance premiums payable under adjustment clauses of the reinsurance contracts are measured at the present value of expected future payments.


21

2020 2019

Current period

$’million

Prior periods

$’millionTotal

$’million

Current period

$’million

Prior periods

$’millionTotal

$’million

Undiscounted claims expense:

Gross claims expense 357.6 (5.5) 352.1 346.4 (68.3) 278.1

Reinsurance and other recoveries (45.1) (10.0) (55.1) (47.5) 22.8 (24.7)

Net claims expense 312.5 (15.5) 297.0 298.9 (45.5) 253.4

Discount movement:

Gross claims expense (6.1) 20.8 14.7 (10.4) 40.0 29.6

Reinsurance and other recoveries 2.3 (6.7) (4.4) 3.4 (18.4) (15.0)

Net discount movement (3.8) 14.1 10.3 (7.0) 21.6 14.6

Discounted claims expense:

Gross claims expense 351.5 15.3 366.8 336.0 (28.3) 307.7

Reinsurance and other recoveries (42.8) (16.7) (59.5) (44.1) 4.4 (39.7)

Net discounted claims expense 308.7 (1.4) 307.3 291.9 (23.9) 268.0

Overview

Net claims expense is shown below split between undiscounted claims expense (insurance service expenses offset by reinsurance contract revenue) and the movement in discount on outstanding claims and reinsurance provisions.


Current period claims relate to risks borne by the Group in the current financial period.

Prior period claims relate to a reassessment of the risks borne by the Group in all previous reporting periods. The reduction in net claims incurred for prior periods reflects a reassessment by the Group’s valuation actuary of the medico-legal claims environment, including the impact of tort reforms and the prudential margin held against those claims.


Note 4. Underwriting activities (continued)b) Net claims incurred


22

Overview

Accounting standard AASB 1023 “General Insurance Contracts” requires that an insurance group disclose the nature and extent of insurance risks that it is exposed to, and provide a sensitivity analysis for the effect on profit and loss for risk variables.

Insurance risk means risk, other than financial risk, transferred from the holder of a contract to the issuer.

Key drivers of insurance risk include concentration (credit) risk, underwriting and pricing of insurance contracts, claims payment and reserving, and reinsurance.

In accordance with Prudential Standards CPS 220 Risk Management and GPS 230 Reinsurance Management issued by the Australian Prudential Regulation Authority (‘APRA’), the Board and senior management of the Group have developed, implemented and maintain a sound and prudent Risk Management Strategy (RMS) and a Reinsurance Management Strategy (REMS). Annually, the Board certifies to APRA that adequate strategies have been put in place to monitor those risks, that the Group has systems in place to ensure compliance with legislative and prudential requirements and that the Board has satisfied itself as to the compliance with the RMS and REMS.

Concentration/credit risk

Credit and concentration risk exposure arises because the Group’s business is exclusively sourced from health industry participants and is exposed to large losses arising from groups of claims resulting from a common dependent source (for example, a large number of claims arising from a class action related to a faulty medical procedure). This exposure is monitored on a regular basis with a formal review of potential and emerging exposure at least annually.

Underwriting risk

Underwriting risk is managed by appropriately setting and adjusting underwriting strategy, risk selection and pricing practices throughout the underwriting cycle.

Underwriting authority is delegated to underwriters with industry experience. Delegated authority limits reflect the seniority and experience of the underwriter and are supported by controls over the acceptance of risk for both individual and group policies.

Insurance premiums are determined on an annual basis to coincide with the renewal dates of the portfolio. Premium rating is determined with regard to type of specialisation and state of practice, level of billings and other actuarial variables. The projection of future claims costs is performed by the Appointed Actuary using the same data used to estimate the outstanding claims liability to ensure the most accurate and up to date information and claims experience are used for pricing decisions.

Claims payment and reserving risk

Claims payment and reserving risk includes the risks that inappropriate claims are paid and that an insufficient amount is reserved for claims incurred.

Claims management authorities are delegated to claims managers with either or both of medical or legal qualifications and experience. Depending on their nature and complexity, claims are managed either internally or in combination with external legal advisors and solely or in combination by legal and medical practitioners.

The Company employs the services of external actuarial firms proficient in medico-legal matters and health insurance, which assist across a number of areas including reserving, pricing, product development, capital management and reporting.

Reinsurance risk

Reinsurance risk includes credit risk regarding the reinsurance company used.

Credit and concentration risk in relation to reinsurance recoveries is managed by having a number of different reinsurers participate on the reinsurance program. The credit rating of participants to the program is taken into account when placing reinsurance cover for the year and the terms of the reinsurance contracts provide for the removal of participants whose credit rating falls below the minimum standard. The current minimum rating for new participants in the reinsurance program is Standard and Poor’s A-.


Note 4. Underwriting activities (continued)c) Insurance risk


23


The Group conducts sensitivity analysis to quantify the exposure to risk of changes in the key underlying variables. The valuations included in the reported results are calculated using certain assumptions about these variables as disclosed in note 4(d).The movement in any key variable will impact the performance and equity of the Group. The tables below describe how a change in each assumption will affect the insurance liabilities and show analysis of the sensitivity of the profit/(loss) and equity to changes in these assumptions both gross and net of reinsurance.

Variable Impact of movement in variable

Inflation and superimposed inflation rates

Outstanding claims costs make an allowance for future claims inflation. In addition to the general economic inflation rate an additional amount is superimposed to take account of non-economic inflationary factors, such as increases in court awards. Such rates of superimposed inflation are specific to the model adopted. An increase or decrease in the assumed levels of either the economic or superimposed inflation would have a corresponding impact on claims expense.

Discount rates The outstanding claims liability is calculated with reference to expected future payments. These payments are discounted to adjust for the time value of money. An increase or decrease in the assumed rate will have an opposing impact on the total claims expense.

Impact of changes in key variables Financial impact*

Movement in variable

%

Profit/(loss) 2020

$’million

Equity 2020

$’million

Profit/(loss) 2019

$’million

Equity 2019

$’million

Inflation and superimposed inflation rates 1% + (11.9) (11.9) (14.3) (14.3)

1% – 11.2 11.2 14.1 14.1

Discount rates 1% + 9.7 9.7 11.7 11.7

1% – (10.4) (10.4) (12.7) (12.7)

* The above effects are net of the Group’s prima facie income tax rate of 30%.


Sensitivity analysis of changes to actuarial assumptions

d) Insurance contract liabilities

Overview

The net insurance liabilities arising from the Group’s activities comprise insurance contract liabilities (outstanding claims liabilities), reinsurance contract assets, other recoveries receivable, and reinsurance premiums payable.


The provision for outstanding claims is measured as the central estimate of the present value of expected future claims payments plus a risk margin. The expected future claims payments include those in relation to claims reported but not yet paid; claims incurred but not reported (IBNR); claims incurred but not enough reported (IBNER); anticipated claims handling costs and allowances for the Risk Equalisation Special Account for health insurance outstanding claims liabilities. Claims handling costs exclude costs that can be associated directly with individual claims, such as legal and other professional fees (which are included within claim payments), but include costs that can only be indirectly associated with individual claims, such as claims administration costs.

The expected future payments are discounted to present value using a risk free rate.

A risk margin (also referred to as a prudential margin) is applied to the discounted central estimate of outstanding claims to reflect the inherent uncertainty in the central estimate to arrive at the outstanding claims provision.

Note 4. Underwriting activities (continued)c) Insurance risk (continued)


24

Note 4. Underwriting activities (continued)d) Insurance contract liabilities (continued)




Actuarial valuations are used to estimate the components of the net insurance liabilities. Although the most appropriate methodology, analyses and assumptions are adopted, the actuarial valuations are subject to reliances and limitations and the estimates of future costs of claims are always inherently uncertain, especially for claims which involve physical and/or mental injury.

Future costs and related recoveries depend on the outcome of events which cannot be forecast precisely, such as numbers of claims which will ultimately be lodged, expectations of claimants and their legal representatives and amounts of court awards.

The assessment of the anticipated claims liability is sensitive to a number of factors, including the ultimate number of claims, average claim cost, inflation rates, discount factors, and changes in the medico-legal environment.

Estimates of the IBNR liability are subject to greater uncertainty than the estimates relating to the known claims.

To mitigate the risk associated with the inherent uncertainty in the liability estimation, the Group maintains a prudential margin on its claims liabilities. Maintaining such a provision is a requirement of the industry regulator APRA. The effect of such a margin is to increase the probability that the booked liability will be adequate.

The following assumptions have been used in determining the outstanding claims liabilities:

Process used to determine assumptions

Methodology

Claims are split into six claim groups; legal expenses claims, non-civil claims, large claims (those with an estimated cost over $1,500,000 in June 2011 dollars), medium claims (estimate cost to have exceeded $300,000 adjusted for inflation since June 2011 dollars), small claims and infant claims. Civil claims are separated into different state based jurisdictions. Since 2016, the valuation methodology has been updated to separate infant claims by state and into small, medium and large claims. The impacts and possible need for adjustment arising from COVID-19 was considered and it was concluded that the models naturally respond, noting the claims made nature of cover.

Inflation and discount rates

Normal inflation is based on average weekly earnings as reported by an independent economics consultancy. Superimposed inflation is modelled on past experience taking into account the general experience for bodily injury claims. The rates of future investment return assumed for discounting projected future claims payments and expenses are based on market yields on Australian Government fixed interest securities.

2020 2019

Normal inflation rate 3.0% 2.5%

Superimposed inflation 2.00% 2.00%

Average weighted discount rate 0.69% 1.19%

Average weighted term to settlement – known claims 3.4 years 3.4 years

Average weighted term to settlement – IBNR claims 4.8 years 4.7 years

Estimated ultimate number of claims 4,043 3,383

Claims handling expense percentage 7.00% 7.00%


25




Critical accounting estimates and judgements (continued)

Process used to determine assumptions (continued)

Claims handling expense

Allowance for claims handling expenses is determined by analysing historical claims handling costs.

Average term to settlement

The average term to settlement from the balance date of the outstanding claims liabilities is determined by reference to historical claim reporting and payment patterns.

Estimated ultimate number of claims

The ultimate number of claims is based on the number of current claims and an estimate of future claims emerging from past notifications. The number of future claims emerging is estimated in the valuation using a transition probability model to project claim transitions from past notifications into claims. The number of notification to claim transitions is estimated by applying a vector of quarterly probabilities of transitions to the number of notifications not yet emerged as a claim. Transition probabilities are selected by analysing historic notification to claim emergence experience.

Deferred Claims Liability

In March 2020 the Government announced the suspension to certain surgery procedures and social distancing measures in response to the Covid-19 pandemic. APRA has prescribed an approach to allow for the liability relating to claims that were missing in the service months of March, April, May and June 2020 due to COVID-19 restrictions for financial reporting and capital adequacy. This approach is supported by ASIC and has therefore been adopted in these financial statements.

The liability requires the following components:

• “Claims that did not occur” in the above service months, split by hospital treatment and general treatment. This was determined by:

- Estimating the hospital and general treatment claims that would have occurred in those service months if COVID-19 had not happened.

- Subtracting the estimated hospital and general treatment claims that ultimately did occur, based on payments to date and the outstanding claims liability for those service months.

• APRA has further prescribed that the implied 75th percentile level of sufficiency of the liability for the ‘claims that did not occur’ is to be calculated as 100% of the above calculation for hospital claims and 85% for general treatment claims. For DHF, the liability determined on this basis has been determined as being at least at the 75th percentile level of sufficiency, not the 85th percentile as is the case with the outstanding claims provision.

APRA has indicated that both claims handling expenses and risk margins are implicitly included in the hospital and general treatment factors prescribed above, although a separate allowance is made for risk equalisation.


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2020 $’million

2019 $’million

Insurance contract liabilities:

Central estimate 724.1 683.8

Discount to present value (18.0) (29.5)

706.1 654.3

Risk margin discounted 189.7 170.0

Gross outstanding claims liabilities discounted 895.8 824.3

Other insurance liabilities:

Deferred claims liability 8.3 -

Other insurance liabilities 8.3 -

Current outstanding claims liabilities 195.0 190.0

Non-current outstanding claims liabilities 709.1 634.3

904.1 824.3

Gross outstanding claims undiscounted central 732.4 683.8

Risk margin undiscounted 195.7 179.2

Total gross claims undiscounted 928.1 863.0

Risk margin

The probability of adequacy at 30 June 2020 is 85% (2019: 85%) for AIL, AGHL, Medical Defence Association of Victoria Limited (“MDAV”) and DHF and 99.5% for Professional Insurance Australia Pty Limited (“PIA”) (2019: 99.5%).

The discounted risk margin included in gross outstanding claims at 30 June 2020 is 26.9% (2019: 26.0%). The discounted risk margin included on net outstanding claims at 30 June 2020 is 21.3% (2019: 20.1%).

2020 2019

Gross$’million

Reinsurance$’million

Net$’million

Gross$’million


Net$’million

Opening balance 824.3 (278.0) 546.3 787.0 (280.3) 506.7

Current year claims expense/(recovery) 351.5 (42.8) 308.7 336.0 (44.1) 291.9

Prior year claims development 15.3 (16.7) (1.4) (28.3) 4.4 (23.9)

(Claim payments)/recoveries during the year (287.0) 43.8 (243.2) (270.4) 42.0 (228.4)

Closing balance 904.1 (293.7) 610.4 824.3 (278.0) 546.3

The following table reconciles opening to closing insurance contract liabilities:




27

2020 $’million

2019 $’million

Expected future reinsurance and other recoveries undiscounted on:

Paid claims 18.6 19.4

Outstanding claims 286.2 275.6

304.8 295.0

Discount to present value (11.1) (17.0)

Reinsurance contract and other recoveries asset 293.7 278.0

Amounts receivable:

Within 12 months 51.1 48.8

After more than 12 months 242.6 229.2

293.7 278.0

Note 4. Underwriting activities (continued)e) Reinsurance and other recoveries


Reinsurance and other recoveries on paid and outstanding claims are recognised as revenue on an accruals basis. Reinsurance and other recoveries on outstanding claims are measured at the present value of the expected future receipts, calculated on the same basis as the liability for outstanding claims. Where recoverability of an amount owing from a reinsurer or other party is in doubt, a provision for default is raised.

Included in other recoveries are amounts receivable under Commonwealth Government schemes. Recoveries on paid and outstanding claims are receivable from the Commonwealth under the Medical Indemnity Act (2002). There are four medical indemnity insurance schemes currently in place that benefit the Group:

1. High Cost Claims Scheme (HCCS)

2. Run-off Cover Scheme (ROCS)

3. Incurred But Not Reported (IBNR) scheme

4. Exceptional claims scheme


The Group works on the assumptions that the schemes will not be withdrawn (in whole or in part with retrospective effect).



28

Note 4. Underwriting activities (continued)f) Claims development tables

Overview

The ultimate claims cost for any particular accident year is not known until all claims payments have been finalised. Most of the covers issued by the Avant group are long tail classes of business for which claims payments may not be finalised for many years into the future.

The claims development tables show how the estimate of this final figure changes over time for the ten most recent years. In accordance with AASB1023 General Insurance Contracts there are two tables showing this both on a gross, and net of reinsurance, basis. This table therefore illustrates the variability and inherent uncertainty in calculating the central estimate each year.

Each table shows within it a reconciliation from the current estimate of ultimate undiscounted claims cost to gross and net outstanding claims liability as shown in note 4(d).

Claims development in the year represents the movement in undiscounted claims for the year, and does not include any aspect of claims handling costs, movement in discounting or the movement in risk margin. At the end of the tables is a reconciliation to show how the claims development reconciles to the claims cost (gross and net) shown in the consolidated balance sheet.

Information for the consolidated claims development tables is shown on a financial year basis and is extracted from claims administration systems and actuarial models. IBNR liabilities have been included in the “2010 and prior” column.

GROSS $’million FY of notification of incident ending 30 June

2010 and prior 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total

Gross ultimate claims incurred

Original estimate 185.2 183.2 196.8 214.4 212.0 236.6 224.8 256.3 274.8 285.4

1 year later 169.3 184.3 194.5 215.6 209.1 232.4 222.0 249.4 294.6

2 years later 166.8 170.1 182.3 201.6 187.7 233.5 215.9 255.9

3 years later 1,864.1 171.7 168.4 178.3 196.2 191.5 249.0 227.5

4 years later 1,813.9 167.4 164.7 175.2 194.3 191.9 257.2

5 years later 1,806.1 165.4 177.1 172.6 192.3 191.3

6 years later 1,762.6 169.6 168.2 172.6 190.0

7 years later 1,846.0 165.7 165.3 171.5

8 years later 1,812.0 166.8 169.0

9 years later 1,803.8 163.7

10 years later 1,799.9

Central estimate of ultimate undiscounted claims cost

1,799.9 163.7 169.0 171.5 190.0 191.3 257.2 227.5 255.9 294.6 285.4 4,006.0

Less: cumulative payments to date (1,740.3) (157.0) (155.2) (157.6) (171.1) (163.5) (199.4) (160.7) (165.3) (152.3) (110.7) (3,333.1)

Central estimate of undiscounted outstanding claims liability

59.6 6.7 13.8 13.9 18.9 27.8 57.8 66.8 90.6 142.3 174.7 672.9

Discount (for all notification years combined) (16.4)

Claims handling expenses (for all notification years combined) 45.3

Risk margin (for all notification years combined) 189.3

GST 13.0

Gross discounted outstanding claims provision including claims handling expenses and risk margin 904.1

Claims development in the year (3.9) (3.1) 3.7 (1.1) (2.3) (0.6) 8.2 11.6 6.5 19.8 285.4 324.2



29

NET $’million FY of notification of incident ending 30 June

2010 and prior 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total

Net ultimate claims incurred

Original estimate 126.8 137.2 147.1 170.7 175.3 196.6 189.0 221.9 245.2 257.0

1 year later 130.0 138.0 148.8 169.4 173.3 190.1 186.7 213.8 252.4

2 years later 122.5 129.9 139.8 161.9 159.1 187.3 182.4 218.1

3 years later 1,484.8 125.0 128.7 137.7 160.7 161.0 197.0 190.0

4 years later 1,451.2 120.9 124.1 137.3 159.2 161.1 200.3

5 years later 1,437.2 118.9 129.9 135.3 157.7 159.2

6 years later 1,409.7 122.8 126.6 135.6 155.6

7 years later 1,492.9 120.1 125.2 134.8

8 years later 1,503.3 118.6 124.0

9 years later 1,481.8 117.2

10 years later 1,480.9

Central estimate of ultimate undiscounted claims cost

1,480.9 117.2 124.0 134.8 155.6 159.2 200.3 190.0 218.1 252.4 257.0 3,289.5

Less: cumulative payments to date (1,468.3) (112.8) (117.0) (126.3) (144.5) (141.9) (162.3) (141.5) (152.2) (143.4) (108.9) (2,819.1)

Central estimate of undiscounted outstanding claims liability

12.6 4.4 7.0 8.5 11.1 17.3 38.0 48.5 65.9 109.0 148.1 470.4

Discount (for all notification years combined) (10.1)

Claims handling expenses (for all notification years combined) 42.0

Risk margin (for all notification years combined) 108.1

Net discounted outstanding claims provision including claims handling expenses and risk margin 610.4

Reconciliation to the consolidated balance sheet:

Gross outstanding claims liabilities 904.1

Reinsurance and other recoveries (293.7)

Net outstanding claims liabilities 610.4

Claims development in the year (1.0) (1.4) (1.2) (0.8) (2.1) (1.9) 3.3 7.6 4.3 7.2 257.0 271.0

There is no data disclosed in the Gross and Net Claims Development tables for the “2010 & prior” column relating to the Original Estimate, 1 year later and 2 years later as we have incomplete information.

The following table reconciles from claims development in the year (shown in the above two claims development tables) to gross claims expense and recoveries revenue as disclosed in the consolidated statement of comprehensive income:

Gross$’million


Net$’million

Development tables claims 324.2 (53.2) 271.0

Adjusted for the effect of:

Movement in discounting on claims 81.7 (11.8) 69.9

Movement in discounted risk margin (20.1) 5.0 (15.1)

Discounted cost of claims handling (19.0) 0.5 (18.5)

Gross claims 366.8 (59.5) 307.3


Note 4. Underwriting activities (continued)f) Claims development tables (continued)


30

Note 4. Underwriting activities (continued)g) Unearned income


Unearned premiums

Gross written premium is earned in profit or loss in accordance with the pattern of incidence of risk. The unearned premium liability is that portion of gross written premium that has not yet been earned in the profit or loss, and is calculated based on the coverage period of the insurance and in accordance with the expected pattern of incidence of risk.

Liability adequacy test

At each balance date, the adequacy of the unearned premium liability is assessed on a net of reinsurance basis against the present value of the expected cash flows relating to potential future claims in respect of relevant insurance contracts, plus an additional risk margin to reflect the inherent uncertainty of the central estimate. This test is carried out separately for each group of contracts subject to broadly similar risks that are managed together as a single portfolio. If the unearned premium liability, less intangible assets and deferred acquisition costs is deficient, the resulting deficiency is recognised in the statement of comprehensive income of the Group

The probability of sufficiency applied to the liability adequacy test differs from the probability of sufficiency adopted in determining the outstanding claims liabilities provision. The reason for the difference is that the former is a benchmark used to test the adequacy of the net premium liabilities whereas the latter is a measure of the sufficiency of the outstanding claims liabilities provision carried by the Company.

AASB 1023 requires the inclusion of a risk margin in insurance liabilities, but does not prescribe a minimum level of margin. Whilst there is established practice in the calculation of the probability of sufficiency of the outstanding claims liabilities provision, no such guidance exists in respect of the level of risk margin to be used in determining the adequacy of net premium liabilities. The Group has adopted a risk margin for the purpose of the liability adequacy test to produce a 75% probability of sufficiency. The 75% basis is a recognised industry benchmark in Australia, for both general insurers and health insurers and is also the basis required for reporting to APRA.

Unearned subscriptions/member service fee

Subscription revenue is earned in profit or loss over the subscription period. The unearned subscription is that portion of subscription revenue that has not yet been earned in the profit or loss, and is calculated based on the period covered by the subscription fees.


The application of the liability adequacy test in respect of the net premium liabilities identified a surplus at 30 June 2020 and 2019.

2020 $’million

2019 $’million

Unearned subscriptions/member service fee 20.9 21.4

Unearned premiums 213.4 207.1

234.3 228.5

Unearned premium liability at the beginning of the year 207.1 202.5

Deferral of premiums on contracts written in the period 213.4 207.1

Earnings of premiums written in previous periods (207.1) (202.5)

Unearned premium liability at the end of the year 213.4 207.1



31

Note2020

$’million2019

$’million

Employee-related costs 74.9 66.7

Director-related costs 2.1 2.1

Depreciation – ROU lease asset 5(f ) 6.1 -

Depreciation and amortisations – Property and equipment and intangibles 4.7 4.5

Other general and administrative expenses 11.9 22.5

99.7 95.8

Acquisition costs 34.1 31.1

Other underwriting expenses 35.1 40.5

Other operating expenses 30.5 24.2

99.7 95.8

Note 4. Underwriting activities (continued)h) Deferred expenses

i) Acquisition and other expenses


A portion of acquisition costs relating to unearned premium is deferred in recognition that it represents a future benefit. Deferred acquisition costs are measured at the lower of cost and recoverable amount. Deferred acquisition costs are amortised over the period related to the premium written.


Acquisition costs consist of the expenses incurred by Group that is directly related to the acquisition of new business or renewal of existing business.

Other underwriting expenses consist of the expenses incurred by the Group that is related to the insurance business other than acquisition costs.

Other operating expenses consist of the expenses incurred by the Group that is not related to the insurance business.

2020 $’million

2019 $’million

Deferred reinsurance premiums 4.4 4.4

Deferred ROCS expense 7.9 7.8

Deferred acquisition costs 8.6 7.9

20.9 20.1

All deferred expenses are classified as current assets.



32

Note 5. Other operating activities


Membership subscription revenues and fees

Subscription revenues and fees are the amount charged to members, excluding taxes collected on behalf of third parties, and is recognised over the period of membership, being twelve months from 1 January or 1 July each year. The portion of subscription revenues and fees received or receivable not earned in the statement of comprehensive income at the reporting date is recognised in the balance sheet as an unearned income.

Other

This relates to all the revenues of the entities in the Group excluding premiums, membership subscription revenues and fees.

2020 $’million

2019 $’million

Membership subscription revenues and fees 28.3 19.8

Others 12.5 8.7

Other income 40.8 28.5

a) Other income


Overview

Other income mainly relates to the earned membership subscription revenues and fees received by the Group.


33

Note 5. Other operating activities (continued)


Trade and other receivables

Receivables are recognised initially at fair value and subsequently measured at amortised cost less provision for impairment.

Receivables are generally due for settlement within 30 days. They are presented as current assets unless collection is not expected for more than 12 months after the reporting date.

Collectability of receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off by reducing the carrying amount directly, and a provision for impairment is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivable. Due to the short-term nature of these receivables, the carrying value is assumed to be an approximation to the fair value.

Any change in the amount of the impairment loss is recognised in profit or loss within other underwriting expenses if it relates to premium receivable, or within other operating expenses if it relates to other categories of receivables.

Trade and other Payables

These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. The amounts are unsecured and, except for adjustment reinsurance premiums, are usually paid within 30 days of recognition. Trade and other payables are presented as current liabilities unless payment is not due within 12 months from the reporting date. They are recognised initially at their fair value and subsequently measured at amortised cost using the effective interest method.

Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense.

2020 $’million

2019 $’million

Premium and subscription debtors 105.2 106.9

Other 7.2 8.8

Provision for impairment of receivables (0.8) (0.4)

Receivables – current 111.6 115.3

2020 $’million

2019 $’million

Reconciliation of provision for impairment of receivables:

Opening provisions (0.4) (1.0)

(Additional)/release of provisions recognised (0.4) 0.6

Closing provisions (0.8) (0.4)


b) Trade and other receivables


34

2020 $’million

2019 $’million

Sundry creditors and accruals 26.8 30.3

Reinsurance premiums payable 3.0 3.0

ROCS levy payable 6.6 6.6

Lease incentive liability 10.0 12.1

GST payable 15.5 15.3

Stamp Duty payable 12.8 12.7

74.7 80.0

Current payables 66.8 70.0

Non-current payables 7.9 10.0

74.7 80.0

c) Trade and other payables

d) Other provisions

Overview

Other provision relates to restoration provision and provision for reinsurance premium payable.

Restoration provision relates to the expected costs of returning the current leased premises to their original condition at the end of the lease term.

The provision for reinsurance premiums payable represents the adjustment premiums payable in respect of prior years’ reinsurance cover. The adjustment premiums are additional reinsurance expenses payable under reinsurance contracts where recoveries under those contracts have exceeded or are expected to exceed specified items.



Movement in other provisionsCurrent

restoration provision $’million

Current reinsurance premiums

$’million

Total current

$’million

Non-current restoration provision

$’million

Total other provisions

$’million

Value as at 1 July 2018 0.2 0.5 0.7 0.9 1.6

Additional provisions recognised - - - 0.4 0.4

Payments (0.1) - (0.1) - (0.1)

Release from provisions (0.1) (0.2) (0.3) - (0.3)

Transfer to current 0.2 - 0.2 (0.2) -

Value as at 30 June 2019 0.2 0.3 0.5 1.1 1.6

Additional provisions recognised - 0.9 0.9 0.4 1.3

Payments - (0.7) (0.7) - (0.7)

Release from provisions (0.1) - (0.1) - (0.1)

Increase from remeasurement - - - 0.1 0.1

Transfer from current (0.1) - (0.1) 0.1 -

Value as at 30 June 2020 - 0.5 0.5 1.7 2.2


35

e) Employee-related provisions

Overview

Employee benefits relate to the Group’s liability for long service leave and annual leave.


In calculating non-current long service leave provisions, consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the end of the reporting period of government bonds with terms and currencies that match, as closely as possible, the estimated future cash outflows. Remeasurements as a result of experience adjustments and changes in actuarial assumptions are recognised in profit or loss.


The obligations are presented as current provisions in the balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting period, regardless of when the actual settlement is expected to occur.

Current provision includes all annual leave balances and all long service leave balances where employees have completed the required period of service, since the Group does not have unconditional right to defer settlement for any of these obligations. However, based on past experience, the Group does not expect all employees to take the full amount of accrued leave or require payment within the next 12 months. The amounts included as current, but where leave is not to be expected to be taken or paid within the next 12 months are disclosed below.

Where employees have not completed the required period of service for long service leave, provisions are considered to be non-current and measured as the present value of expected future payments to be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method.

Current$’million

Non-current$’million

Total$’million

Value as at 1 July 2018 5.3 2.4 7.7

Additional provisions recognised 10.0 0.3 10.3

Payments (9.9) - (9.9)

Reclassification 0.1 (0.1) -

Increase from remeasurement 0.2 0.1 0.3

Value as at 30 June 2019 5.7 2.7 8.4

Additional provisions recognised 11.0 0.3 11.3

Payments (9.8) (0.1) (9.9)

Increase from remeasurement 0.1 - 0.1

Value as at 30 June 2020 7.0 2.9 9.9

2020 $’million

2019 $’million

Current leave obligation expected to be settled after 12 months 3.0 2.5




36

f) Leases



Overview

AASB 16 Leases

The Group adopted AASB 16 with an initial application date of 1 July 2019. AASB 16 requires lessees to recognise most leases on balance sheet as lease liabilities, with corresponding right of use assets being recognised. Lessees have the option not to recognise certain type of leases such as short-term leases and leases for which the underlying asset is of low value.

The Group applied the ‘modified retrospective’ transition method in adopting AASB 16 without restating the comparative information for 2019 as permitted by the transitional provisions of the standard. It recognised the cumulative effect of initially applying AASB 16 as an adjustment to the opening balance of retained earnings at 1 July 2019.


Recognition and measurement

Right-of-use lease asset (‘ROU’)

Initial recognition

ROU lease assets are measured as if AASB 16 had been applied since the commencement date of the lease. The asset is initially measured as the present value of the future lease payments less any lease incentives received and discounted using the Group’s incremental borrowing rate of 2.5 percent at the date of transition.

Subsequent measurement

The ROU lease asset is measured at cost less accumulated depreciation and any accumulated impairment losses, and adjusted for any remeasurement of the lease liability.

Depreciation of ROU lease asset is calculated using the straight-line method to allocate their cost over their estimated useful lives being the lesser of the remaining lease term and the life of the asset. This is presented as part of other underwriting expenses in the consolidated statement of comprehensive income.

Lease liabilities

Initial recognition

The lease liabilities are measured at the present value of the future lease payments, net of cash lease incentives, discounted using the Group’s incremental borrowing rate of 2.5 percent at the date of transition.

Subsequent measurement

Lease liability is measured by:

• increasing the carrying amount to reflect interest on the lease liability;

• reducing the carrying amount to reflect the lease payments made; and

• remeasuring the carrying amounts to reflect any reassessment or lease modifications.

Lease payments exclude service fees for cleaning and other costs.

Lease modifications are accounted for as a new lease.

Interest expense on lease liabilities is presented as financing cost in the consolidated statement of comprehensive income.

The Group has elected not to recognise ROU lease asset and lease liabilities for leases where the lease term is less than or equal to 12 months. Payments for such leases are recognised as an expense on a straight-line basis over the lease term.


37

f) Leases (continued)



Right-of-use lease assets

$’million

Lease liabilities$’million

Accumulated surpluses$’million

Total equity

$’million

Balance at 30 June 2019 - - 1,195.1 1,251.4

Adoption of AASB 16 36.0 38.7 (0.8) (0.8)

Balance at 1 July 2019 36.0 38.7 1,194.3 1,250.6

$’million

Lease commitments as at 30 June 2019 (undiscounted) 40.0

Lease commitments not commenced at 30 June 2019 0.5

Discounting impact (1.8)

Opening lease liabilities at 1 July 2019 38.7

$’million

Upon adoption of AASB 16 at 1 July 2019 36.0

Net addition during the year 3.2

Depreciation expense (6.1)

Closing balance at 30 June 2020 – Non-current 33.1

$’million

Upon adoption of AASB 16 at 1 July 2019 38.7

Net addition during the year 3.3

Interest expense 0.9

Payments made (6.7)

Closing balance at 30 June 2020 36.2

Current payables 6.8

Non-current payables 29.4

36.2

Opening balance reconciliation:

The lease liabilities as at 1 July 2019 can be reconciled to the operating lease commitments as of 30 June 2019 as follows:

Right-of-use lease assets:

The ROU lease asset recognised by the Group is buildings. The following table details the carrying amount of ROU lease assets at 30 June 2020 and the movements during the year.

Lease liabilities:

The following table details the carrying amount of lease liabilities at 1 July 2019 and the movements during the year.


38

Note 6. Financial risk management

Overview

A financial asset is any asset which is cash, an equity instrument of another entity, or a contractual right to receive cash or another financial asset from another entity.

A financial liability is a contractual obligation to deliver cash or another financial asset to another entity.

AASB 7 Financial Instruments: Disclosures requires disclosure of the risks associated with financial instruments (assets and liabilities), numerical information around the quantum of the exposures to each risk and the management approach to mitigating those risks. AASB 1023 General Insurance Contracts specifically requires assets and liabilities arising from insurance contracts to be included within that disclosure.

The Group’s activities expose it to a variety of financial risks: market risk (including interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and manages these risks within the agreed risk appetite.

The risks are controlled by ensuring that all activities are transacted in accordance with approved mandates, strategies and limits.

The Group has an appointed custodian (J. P. Morgan Investor Services Australia), an investment advisor (Mercer (Australia) Pty Limited) and has negotiated Investment Management Agreements (IMA) with external investment managers, with all the funds managed in accordance with these IMAs. However, full responsibility and accountability is maintained by the Group through management and the Group Investment Committee.

Investment Policy Statements take into account the Group’s overall risk tolerance and long-term risk-return requirements.

The Group has the following financial assets and liabilities at the balance sheet date:

2020 $’million

2019 $’million

Financial assets:


Trade and other receivables 111.6 115.3

Investments 1,946.8 1,919.8

Reinsurance and other recoveries 293.7 278.0

2,397.9 2,352.3

Financial liabilities:

Trade and other payables 74.7 80.0

Insurance contract liabilities 904.1 824.3

Lease liabilities 36.2 -

1,015.0 904.3

Net financial assets 1,382.9 1,448.0



39

Note 6. Financial risk management (continued)a) Credit risk

Overview

Credit risk is the risk of not recovering money owed to Avant by third parties as well as the loss of value of assets due to deterioration in credit quality, and is managed on a group basis.

Credit risk arises from deposits with banks and financial institutions, reinsurance recovery exposures as well as credit exposures to customers, including outstanding premium receivables.

The following policies and procedures are in place to mitigate the Group’s exposure to credit risk:

a) A Group-wide credit risk policy is in place which defines what constitutes credit risk for the Group. Compliance with the policy is monitored and exposures and breaches are reported to the Group Investment Committee. Credit risk in respect of debtors is actively monitored. Strict controls are maintained over counterparty exposures. Business is transacted with counterparties that have a strong credit rating and concentration of risk is avoided by adherence to counterparty limits that are set each year by management and the Board of Directors and which are reviewed by management on a regular basis.

b) The carrying amounts of financial assets included in the consolidated balance sheet represent the Group’s maximum exposure to credit risk in relation to these assets. Where entities have a right of set-off and intend to settle on a net basis, this set-off has been reflected in the financial statements in accordance with accounting standards.

c) Credit risk is addressed by limiting the aggregate exposure to any single counterparty by prescribing the credit quality of the counterparties, and by prescribing credit policies to direct management in managing credit exposures. Also, a minimum of two participants on any layer of reinsurance is required, with a minimum of five reinsurers on the program. No reinsurer will be allocated a share equal to more than 50% of any original insurance policy claim exposure. Participants in the current year’s reinsurance program must have a minimum Standard and Poor’s rating of A-.

A provision for impairment of receivables was raised on debts that are more than 90 days past due with the exception of the corporate and personal debts that are under scheduled payment plan and identified by Management as fully recoverable. Provision for impairment of receivables is disclosed in Note 5(b).

The following tables provide information regarding the aggregate credit risk exposure of the Group at the balance sheet date in respect of the major classes of financial assets. The analysis classifies the assets according to Standard & Poor’s counterparty credit ratings. AAA is the highest possible rating. Rated assets falling outside the range of AAA and BBB are classified as speculative grade. The “Not rated” investment category includes equities and unlisted unit trusts as at 30 June 2020 of $1,082.3m (30 June 2019: $1,173.3m) where credit ratings are not applicable. These have been included in the table for completeness.

As at 30 June 2020

CREDIT RATING

AAA $’million

AA$’million

A $’million

BBB $’million

Not rated $’million

Total $’million

Cash at bank and short-term bank deposits - 45.8 - - - 45.8

Receivables - - - - 111.6 111.6

Investments 279.9 192.7 155.3 50.3 1,268.6 1,946.8

Reinsurance and other recoveries 267.7 13.7 11.1 - 1.2 293.7

547.6 252.2 166.4 50.3 1,381.4 2,397.9

As at 30 June 2019

CREDIT RATING

AAA $’million

AA$’million

A $’million

BBB $’million

Not rated $’million

Total $’million

Cash at bank and short-term bank deposits - 37.9 1.3 - - 39.2

Receivables - - - - 115.3 115.3

Investments 243.6 252.7 104.6 36.3 1,282.6 1,919.8

Reinsurance and other recoveries 256.4 9.4 9.7 - 2.5 278.0

500.0 300.0 115.6 36.3 1,400.4 2,352.3



40

Note 6. Financial risk management (continued)b) Market risk

i. Interest rate risk

Overview

Market risk is the risk of diminution in value of the Group’s investment portfolio arising from adverse movements in the levels and volatility of interest rates and equity prices.

Overview

Financial instruments with floating interest rate expose the Group to cash flow interest rate risk, whereas fixed interest rate instruments expose the Group to fair value interest rate risk.

Interest rate risk is addressed by ensuring that assets and liabilities are appropriately matched so that the effects of interest rate fluctuations can, to a large extent, be offset.

Net outstanding claims liabilities are non-interest bearing financial liabilities for the purpose of this note. The net central estimate of outstanding claims liabilities is discounted to present value by reference to risk-free interest rates. This therefore exposes the Group to underwriting result volatility as a result of interest rate movements. Refer to Note 4 (c) for the sensitivity analysis.

Exposure to interest rate risk and the weighted average interest rate by maturity period is set out in the following table:

2020

Fixed interest maturing in:

Floating interest rate

$’million1 year or less

$’million1 to 5 years

$’millionOver 5 years

$’million

Non-interest bearing

$’millionTotal

$’million

Financial assets:

Cash and cash equivalents 45.8 - - - - 45.8

Receivables - - - - 111.6 111.6

Investments 49.1 176.1 296.9 202.4 1,222.3 1,946.8

Reinsurance and other recoveries - - - - 293.7 293.7

Total financial assets 94.9 176.1 296.9 202.4 1,627.6 2,397.9


Trade and other payables - - - - 74.7 74.7

Insurance contract liabilities - - - - 904.1 904.1

Lease liabilities - - - - 36.2 36.2

Total financial liabilities - - - - 1,015.0 1,015.0

Net financial assets 94.9 176.1 296.9 202.4 612.6 1,382.9

Weighted average interest rate 0.31% 3.54% 4.60% 3.49%



41

2019

Fixed interest maturing in:

Floating interest rate

$’million1 year or less

$’million1 to 5 years

$’millionOver 5 years

$’million

Non-interest bearing

$’millionTotal

$’million

Financial assets:

Cash and cash equivalents 39.2 - - - - 39.2

Receivables - - - - 115.3 115.3

Investments 18.2 210.6 250.6 173.8 1,266.6 1,919.8

Reinsurance and other recoveries - - - - 278.0 278.0

Total financial assets 57.4 210.6 250.6 173.8 1,659.9 2,352.3


Trade and other payables - - - - 80.0 80.0

Insurance contract liabilities - - - - 824.3 824.3

Total financial liabilities - - - - 904.3 904.3

Net financial assets 57.4 210.6 250.6 173.8 755.6 1,448.0

Weighted average interest rate 0.89% 4.48% 3.97% 3.98%

2020 $’million

2019 $’million

Net financial assets as above:

Interest bearing 770.3 692.4

Non-interest bearing 612.6 755.6

Net financial assets 1,382.9 1,448.0

Net non-financial liabilities (156.4) (196.6)

Net assets 1,226.5 1,251.4

Reconciliation of net financial assets to net assets

Financial impact*


%

Profit/(loss)2020

$’million

Equity2020

$’million

Profit/(loss)2019

$’million

Equity 2019

$’million

Interest rate movement 100 bpt + (5.4) (5.4) (4.3) (4.3)

- Interest-bearing financial assets 100 bpt – 5.4 5.4 4.3 4.3

The Group’s sensitivity to movements in interest rates in relation to the value of interest bearing financial assets is shown in the table below:

* Net of taxation at the prima facie rate of 30%.


Note 6. Financial risk management (continued)b) Market risk (continued)

i. Interest rate risk (continued)


42

ii. Price risk

Overview

Price risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices, whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded on the market.

The Group is exposed to securities price risk due to investments in listed and unlisted securities classified in the balance sheet at fair value through profit or loss.

To manage price risk arising from investments in unit trusts and equities, the Group diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set down by AGHL and AIL.

Financial impact*


%

Profit/(loss)2020

$’million

Equity2020

$’million

Profit/(loss)2019

$’million

Equity 2019

$’million

Unit trusts 20% + 158.6 158.6 165.5 165.5

20% – (158.6) (158.6) (165.5) (165.5)

Equities 20% + 12.5 12.5 11.6 11.6

20% – (12.5) (12.5) (11.6) (11.6)

The potential impact of movements in the market value of unit trusts and equities on the Group’s statement of comprehensive income and balance sheet is shown in the sensitivity analysis below:

* Net of taxation at the prima facie rate of 30%.

Note 6. Financial risk management (continued)b) Market risk (continued)



43

Overview

Liquidity risk is the risk that the Group will be unable to meet its financial obligations as they fall due, or only being able to achieve the required level of liquidity at excessive cost. In the Avant group, this risk arises due to the nature of insurance activities where the timing and amount of cash outflows are uncertain.

The following policies and procedures are in place to mitigate the Group’s exposure to liquidity risk:

a) The Group manages liquidity risk by maintaining sufficient cash and marketable securities

b) Liquidity risk is addressed by imposing restrictions on the quality of assets which can be held and by having in place plans for managing liquidity under different scenarios to ensure the Group can operate for a minimum time under adverse conditions.

As at 30 June 20201-3 months

$’million3-6 months


$’million1-2 years $’million

Over 2 years $’million

Total $’million

Trade and other payables 65.2 0.5 1.1 2.1 5.8 74.7

Insurance contract liabilities undiscounted 62.5 56.6 92.4 173.7 542.9 928.1

Lease liabilities 1.7 1.7 3.4 7.2 22.2 36.2

129.4 58.8 96.9 183.0 570.9 1,039.0

As at 30 June 20191-3 months



$’million1-2 years $’million

Over 2 years $’million

Total $’million

Trade and other payables 68.4 0.5 1.1 2.1 7.9 80.0

Insurance contract liabilities undiscounted 57.4 49.3 86.2 163.3 506.8 863.0

125.8 49.8 87.3 165.4 514.7 943.0

Note 6. Financial risk management (continued)c) Liquidity risk

The tables below summarise the maturity profile of certain financial liabilities of the Group based on the remaining undiscounted contractual obligations. The impact of discounting on the financial liabilities shown in the table is not significant, except in the case of outstanding claims liabilities (disclosed undiscounted below).



44

Overview

The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can continue to provide benefits for stakeholders, including members, and to meet its obligations to policyholders.

The Group has a comprehensive Internal Capital Adequacy Assessment Process (“ICAAP”) which documents the various practices governing the management of the Group’s capital. The policy articulates the Group’s tolerance to capital management risk and how these practices manage risk of the Group’s tolerance framework.

The Group allocates its consolidated net assets to a number of purposes including:

a) Capital in APRA regulated insurance subsidiaries (AIL and PIA) held to meet APRA regulatory and target surplus capital requirements within the entities. The amount of capital at 30 June 2020 and its basis for determination is summarised in section (a) below.

b) Capital in DHF held to meet APRA regulatory and target surplus capital requirements within the entity. The amount of capital at 30 June 2020 and its basis for determination is summarised in section (b) below.

c) Intercompany undertakings: As part of a group-wide initiative to centrally manage capital, the Company agreed to support capital undertakings from AGHL to AIL of $111,000,000 and to DHF of $8,000,000 in the event that the entities’ regulatory capital adequacy multiple falls below a minimum ratio of 1.5. An additional $21,000,000 is held as prudential margin on the guarantees.

d) Capital notionally held to support the Retirement Reward Plan noting that the directors maintain sole discretion to declare RRP dividends. The Company does not carry a present obligation to provide the amount at balance date other than any declared dividend amount in the period that has not yet been paid at balance date.

e) Other capital reserves held to support Group business initiatives to enhance and grow its membership offerings and services to policyholders including the Retirement Reward Plan.

Note 7. Capital management

In summary, the net assets as at 30 June 2020 are allocated to the above objectives as follows:

$’million

APRA regulated MDO capital base 369.6

APRA regulated health fund capital base 32.0

Intercompany capital undertakings 140.0

Other capital reserves equivalent to notional RRP assets 357.1

Other capital reserves 327.8

Total 1,226.5



45


Overview

The Group’s insurance subsidiary, AIL is regulated by APRA. The capital base, prudential capital requirement and capital adequacy multiple of AIL are shown in the following table.

APRA Prudential Standard GPS 110 Capital Adequacy for General Insurers requires that the Company maintain a capital base in excess of its prudential capital requirement as defined under the Prudential Standard.

A Board approved ICAAP has been in place during the year to ensure the AIL’s capital is managed adequately, in line with its risk appetite, and target capital requirements.

AIL manages its capital to achieve the following objectives:

• continuation as a going concern;

• ongoing compliance with APRA prudential framework and the applicable Australian Accounting standards;

• remaining within the Company’s risk appetite boundaries as set out in the RAS (“Risk Appetite Statement”) including the capital boundary;

• compliance with the financial requirements of the Australian Financial Services Licence issued by the Australian Securities and Investments Commission; and

• compliance with the capital management framework and strategy of the Group.

The Group also includes PIA, an APRA regulated general insurer, in the later stages of its run-off.

Management monitors both Companies’ capital position regularly and reports the capital position to the Board.

a) APRA Capital Adequacy Multiple

The following tables show the capital adequacy of AIL and PIA calculated in accordance with APRA prudential framework.

i) AIL2020

$’million2019

$’million

Eligible tier 1 capital as defined by APRA

Contributed equity 215.6 215.6

Retained profits1 130.2 137.1

Insurance liability surplus 29.4 30.3

Total equity 375.2 383.0

Less: APRA deductions (17.5) (16.5)

APRA capital base 357.7 366.5

Asset risk charge 66.4 67.5

Insurance risk charge 111.0 101.7

Insurance concentration risk charge 24.2 24.2

Operational risk charge 18.9 17.4

Aggregation benefit (39.5) (39.1)

APRA prudential capital requirement 181.0 171.7

APRA capital adequacy multiple 1.98 2.13

1 Retained profits are in accordance with APRA Prudential Standards.

Note 7. Capital management (continued)


46

1 Retained profits are in accordance with APRA Prudential Standards.

Insurance liability surplus

The value of the insurance liabilities for outstanding claims required by GPS 210 for capital adequacy purposes differs from accounting purposes for the following reasons:

i. GPS 210 requires a prudential margin with a probability of sufficiency of 75% (the level adopted by the Company for accounting purposes is 85% (2019: 85%) for AIL and 99.5% (2019: 99.5%) for PIA; and

ii. (GPS 210 requires an assessment of premium liability (unearned premium less deferred acquisition costs, deferred reinsurance expense and ROCS levy is used for accounting purposes). The surplus between the premium liabilities per APRA requirements and premium liabilities per AASB1023 Premium Liabilities is included in Tier 1 capital.

ii) PIA2020

$’million2019

$’million

Eligible tier 1 capital as defined by APRA

Contributed equity 7.5 7.5

Retained profits1 2.1 1.8

Insurance liability surplus 2.4 2.4

Total equity 12.0 11.7

Less: APRA deductions (0.1) (0.1)

APRA capital base 11.9 11.6

APRA prudential capital requirement 5.0 5.0


2020 $’million

2019 $’million

Total assets 91.1 77.7

Total liabilities 59.1 48.6

Net assets 32.0 29.1

APRA capital adequacy reserve 15.3 11.3



Note 7. Capital management (continued)a) APRA Capital Adequacy Multiple (continued)

Overview

The Group’s private health insurance subsidiary, DHF has been regulated by APRA since 1 July 2015 (PHIAC was the regulator up until 30 June 2015). Solvency and capital adequacy standards are established under the Private Health Insurance Act 2007, (the Act), and are an integral component of the prudential reporting and management regime for private health insurers. In September 2013 PHIAC released the new capital adequacy and solvency standards which came into effect in stages from 31 March 2014 to 1 July 2014. The Company was/has been compliant with the standards throughout the period/year.

Whilst the purpose of the APRA prudential standards is to prescribe the minimum capital requirement, the Company maintains a target level of surplus capital in excess of that minimum. This is to ensure that under a range of adverse circumstances, the Company would be expected to be in a position to meet its existing and future obligations to members and other creditors, in the context of a viable ongoing operation.

b) APRA Capital Adequacy and Solvency requirements – DHF

The following table shows the capital adequacy calculated in accordance with the APRA prudential standards:


47

Note 8. Income tax

Overview

The income tax expense or revenue for the period is the tax payable/receivable on the current period’s taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses.

The Company and its controlled entities AGHL and MDAV are limited by guarantee and operate for the mutual benefit of their members. These entities have been treated as mutual such that they are not liable for income tax on membership income nor are the outgoings related to that income allowable as income tax deductions. These entities are, however, liable to income tax on investment income, capital profits, and income from insurance-related activities. AIL, a subsidiary of AGHL, is taxed in accordance with normal taxation rules applicable to an insurance company.

Tax consolidation legislation

The Company and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation. As a consequence, these entities are taxed as a single entity and the deferred tax assets and liabilities of these entities are set off in the consolidated financial statements.

The Company (head entity of the tax consolidation group) and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand alone taxpayer in its own right.

In addition to its own current and deferred tax amounts, the Company also recognises the current tax liabilities (or assets) and the deferred tax assets arising from losses and unused tax credits assumed from controlled entities in the tax consolidated group.

Assets and liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the Group.

Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities.


Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

Deferred income tax

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax liabilities are not recognised for temporary differences between the carrying amount and tax bases of the investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority.



48

a) Income tax (benefit) expense2020

$’million2019

$’million

Current tax expense 10.3 14.2

Deferred tax (benefit)/expense (23.9) 10.2

Over provision in prior years (1.8) (1.1)

Income tax (benefit)/expense attributable to profit from continuing operations (15.4) 23.3

b) Numerical reconciliation of income tax expense to prima facie tax payable2020

$’million2019

$’million

(Loss)/profit from continuing operations before income tax (30.0) 88.3

Tax at Australian tax rate of 30% (2019: 30%) (9.0) 26.5

Net mutual income – non assessable (4.6) (2.1)

Other permanent differences 1.2 1.8

Effect of franking credits (1.2) (1.8)

Current year income tax (benefit)/expense (13.6) 24.4

Over provision in prior years (1.8) (1.1)

Income tax (benefit)/expense (15.4) 23.3

Note 8. Income tax (continued)


c) Deferred tax* 2020

$’million2019

$’million

Deferred tax assets:

Accruals and provisions 25.5 23.5

Other 1.1 -

Total deferred tax assets before application of set-off 26.6 23.5

Set-off against deferred tax liabilities (10.0) (23.5)

Total deferred tax assets after set-off 16.6 -

Deferred tax liabilities:

Financial assets 7.6 29.4

Investment in associates 2.4 1.5

Total deferred tax liabilities before application of set-off 10.0 30.9

Set-off against deferred tax assets (10.0) (23.5)

Total deferred tax liabilities after set-off - 7.4

Net deferred tax asset movements:

Opening balance at the beginning of the year (7.4) 3.0

Prior year over provision 0.1 (0.2)

Charged to the income statement 23.9 (10.2)

Closing balance at the end of the year 16.6 (7.4)

*Deferred tax assets/(liabilities) are classified as non-current.

The balance comprises temporary differences attributable to:


49

Note 8. Income tax (continued)

f) Tax consolidation legislation

The Company and its wholly-owned Australian controlled entities implemented the tax consolidation legislation from 1 July 2007.

On adoption of the tax consolidation legislation, the entities in the tax consolidated group have entered into a tax sharing agreement which, in the opinion of the Directors, limits the joint and several liability of the wholly-owned entities in the case of a default by the Company.

The entities have also entered into a tax funding agreement under which the wholly-owned entities fully compensate the Company for any current tax payable assumed and are compensated by the Company for any current tax receivable and deferred tax assets relating to unused tax losses or unused tax credits that are transferred to the Company under the tax consolidation legislation. The funding amounts are determined by reference to the amounts recognised in the wholly-owned entities’ financial statements.

The amount receivable/payable under the tax funding agreement is due upon receipt of the funding advice from the Company, which is issued as soon as practicable after the end of each financial year. The Company may also require payment of interim funding amounts to assist with its obligations to pay tax instalments.

2020 $’million

2019 $’million

Opening balance at the beginning of the year 4.2 (23.6)

(Refund)/payment of prior year tax liabilities/assets (6.0) 22.3

Payment of current year tax liabilities 6.7 16.6

Over provision 1.8 1.3

Effect of franking credits 1.2 1.8

Current year provision (10.3) (14.2)

Closing balance at the end of the year (2.4) 4.2

d) Current tax (liabilities)/assets

2020 $’million

2019 $’million

Franking credits available for the subsequent financial years based on a tax rate of 30% (2019: 30%) 353.0 354.0

e) Franking credits



50

Note 9. Property and equipment

Overview

The Group uses property and equipment to assist in carrying out its primary operating activities. Assets are classified by the Group as office furniture & fittings, office computer equipment and leasehold improvements.


Property and equipment are recognised at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.

Depreciation on the assets is calculated using the straight-line method so as to write off the net cost of each item over its expected useful life to the Group, or for leasehold improvements, over the unexpired period of the lease, if this is shorter. Estimates of remaining useful lives are made on a regular basis for all assets, with annual reassessments for major items. An asset’s carrying amount is written down to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

When items are sold, the proceeds of the sale are compared with the carrying amount to determine if there is a gain or loss, which is then included in the statement of comprehensive income.


2020Office furniture

and fittings $’million

Office and computer equipment

$’million

Leasehold improvements

$’millionTotal

$’million

Cost:

At the beginning of the year 0.7 5.2 20.3 26.2

Additions - 0.6 0.2 0.8

Written off in the year - (0.7) (0.1) (0.8)

At the end of the year 0.7 5.1 20.4 26.2

Depreciation:



Depreciation expense for the year - 0.7 2.6 3.3


Net carrying value at 30 June 2020 0.1 1.1 12.0 13.2


To calculate depreciation, we use an estimate of how long the assets will be held for. The expected useful lives of the assets are as follows:

Leasehold improvements 6-10 years

Office furniture and fittings 10-13 years

Office and computer equipment 3-4 years


51


Note 9. Property and equipment (continued)

2019Office furniture

and fittings $’million

Office and computer equipment

$’million

Leasehold improvements

$’millionTotal

$’million

Cost:


Additions - 0.7 2.1 2.8



Depreciation:



Depreciation expense for the year - 0.6 2.5 3.1


Net carrying value at 30 June 2019 0.1 1.4 14.4 15.9

Note 10. Intangible assets

Overview

Intangible assets are identifiable non-physical assets which have expected future economic benefits that will flow to the entity and can be reliably measured. The fact that it is identifiable distinguishes it from goodwill.

The Group holds four types of intangible assets which are:

Customer relationships

Customer relationships comprise of the capitalisation of future profits relating to insurance contracts acquired, and the expected renewal of those contracts. It also includes the value of the distribution networks and agency relationships. Customer relationships are amortised over the remaining period of estimated useful life.

Brands

Brands represent the revenue generating ability of acquired brands. The brand recognised in this set of financial statements relates to DHF, a registered private health insurer purchased by the Avant group in 2012. This has been fully amortised as at 30 June 2019.

Software

Software represents both the acquired and internally developed software which is not integral or closely related to an item of hardware.

Goodwill

This represents the future economic benefits arising from assets acquired in the acquisition of Darjack Pty Limited and JRB Technologies Pty Ltd that are not individually identified and separately recognised.


52

Note 10. Intangible assets (continued)



Customer relationships are measured at their fair value at the date of acquisition less accumulated amortisation. They are amortised based on the timing of projected cash flows that will emerge from the block of in-force business and business expected to be renewed from this block of business, over its estimated useful life of 10 years on a straight line basis.

Brands

Brands which are purchased as part of an acquisition are measured using the replacement cost approach and are recognised at its fair value at the date of acquisition less accumulated amortisation since that date. Amortisation is calculated over its estimated useful life of 5 years on a straight line basis.

All intangible assets are reviewed at least annually for indicators of impairment, which could include either fair value at that date, or estimated remaining useful life.

Software

Software are recognised at cost less accumulated amortisation and impairment. The cost includes expenditure that is directly attributable to the acquisition or development of the asset. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.

Amortisation of the assets is calculated using the straight-line method so as to write off the net cost of each item over its expected useful life to the Group. An asset’s carrying amount is written down to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Goodwill

Goodwill is measured as the excess of the cost of acquisition incurred by the purchasing entity over the fair value of the identifiable net assets. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses.



Intangible assets held by the Group, except for goodwill, are deemed to have a finite useful life.

Management have reviewed the finite useful life at year end and deemed that there has been no change in the expected pattern of consumption of future economic benefits. In addition management expects that the consumption will continue to occur in an even straight line pattern.

The expected useful lives of intangible assets are as follows:

Customer relationships 10 years

Brands 5 years

Software 3-5 years


53

Note 10. Intangible assets (continued)


Brand$’million


$’millionSoftware$’million

Goodwill $’million

Total $’million

Cost:

As at 30 June 2018 0.5 5.2 7.3 - 13.0

Additions 0.1 - 1.3 5.2 6.6

Written off/impaired in the year (0.6) - (0.3) - (0.9)

As at 30 June 2019 - 5.2 8.3 5.2 18.7

Additions - - 1.4 - 1.4

Written off/impaired in the year - - (1.3) - (1.3)

As at 30 June 2020 - 5.2 8.4 5.2 18.8

Accumulated amortisation:

As at 30 June 2018 0.5 3.1 5.5 - 9.1

Written off in the year (0.6) - (0.3) - (0.9)

Amortisation expense for year ended 30 June 2019 0.1 0.5 0.8 - 1.4

As at 30 June 2019 - 3.6 6.0 - 9.6

Written off in the year - - (0.8) - (0.8)

Amortisation expense for year ended 30 June 2020 - 0.5 0.9 - 1.4

As at 30 June 2020 - 4.1 6.1 - 10.2

Net carrying value at:

30 June 2019 - 1.6 2.3 5.2 9.1

30 June 2020 - 1.1 2.3 5.2 8.6

Remaining years useful life at:

30 June 2019 - 3 3 to 5 years

30 June 2020 - 2 3 to 5 years

Reconciliation of amortisation expense to the statement of comprehensive income

30 June 2020 30 June 2019

Total amortisation expense for the year* 1.4 1.4

Less: Amortisation expense – Software which is included in other underwriting expenses (0.9) (0.8)

Amortisation of intangible assets presented in the statement of comprehensive income 0.5 0.6


54

Note 11. Equity

Overview

AMGL is a mutual company, whose ownership base is made up of its members. As such, the company does not have share capital, but rather accumulated surpluses to which the members have a joint entitlement to.

The Board of AMGL have determined that the best method of returning surpluses to members is through the discretionary payment of dividends. The Company is the first medical defence organisation in Australia to pay fully franked dividends to members.


Business combination reserve

The consolidated reserves relate to the portfolio transfer of Professional Indemnity Insurance Company Australia Pty Limited’s (“PIICA”) assets to AIL on 30 September 2007 when PIICA ceased to offer insurance policies. PIICA was the insurer of MDAV prior to the merger of AGHL and MDAV in 2007.

Accumulated surpluses

The Group has separated its accumulated surpluses between those derived from mutual tax exempt activities and those derived from mutual but taxable activities including the activities of AIL and PIA. The Group has franking credits that would only be available for distributions from accumulated surpluses derived from mutual but taxable activities

a) Reserves2020

$’million2019

$’million

Business combination reserve

At the beginning and at the end of the year 54.6 54.6


b) Accumulated surpluses to owners of Avant Mutual Group LimitedNote

2020 $’million

2019 $’million

At the beginning of the year:

Mutual – Tax exempt 238.6 231.4

Mutual – Taxable 956.5 906.9

1,195.1 1,138.3

Adjustment on adoption of new accounting standards 5(f ) (0.8) -

Balance as at 1 July 1,194.3 1,138.3

Total comprehensive income for the year:


Mutual – Taxable (29.9) 57.5

(14.2) 65.3

Dividends paid in the year:

Mutual – Tax exempt (0.5) (0.6)

Mutual – Taxable (9.0) (7.9)

(9.5) (8.5)

At the end of the year:


Mutual – Taxable 916.8 956.5

1,170.6 1,195.1


55

Note 12. Remuneration of key management personnel

Overview

AASB 124 Related party disclosures requires disclosure of the compensation of directors (executive and non-executive) and those persons having authority and responsibility for planning, directing and controlling the activities of the Group (collectively defined as key management personnel (“KMP”).

ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191 requires the amounts to be disclosed rounded to the nearest $’000.


The key management personnel include the Company Directors, the Managing director (MD) and those executives that report solely and directly to the MD.


Directors’ remuneration is paid to all Directors of the Group.

Directors do not receive termination benefits.

Directors’ remuneration excludes insurance premiums paid by the Group in respect of Directors’ and officers’ liability insurance contracts as the contracts do not specify premiums paid in respect of individual Directors and officers. Information relating to the insurance contract is set out in the Directors’ report.

2020 $’000

2019 $’000

Short-term employee benefits:

Cash salary and fees 10,427 9,666

Post-employment benefits:

Superannuation 512 425

Termination benefits 697 317

Total remuneration 11,636 10,408

Details of the remuneration of the KMP of the Group are shown below:



56

Note 13. Remuneration of auditors

Overview

Details of audit remuneration are required under AASB 1054 “Australian Additional Disclosures”. These are required to be disclosed rounded to the nearest $’000 as per ASIC Corporations (Rounding in Financial/ Directors’ Reports) Instrument 2016/191.

2020 $’000

2019 $’000

Audit services

Deloitte Touche Tohmatsu

- Audit of financial reports 410 415

Other assurance and non-assurance services

Deloitte Touche Tohmatsu

- Audit of regulatory returns 75 75

- Other non-assurance services 100 272

585 762



57

Note 14. Events occurring after the reporting period

Note 15. Contingent liabilities

Overview

AASB 110 Events after the reporting period summarises the disclosures required when events occur after the balance date which require changes to the recognition and measurement, disclosure or otherwise change the view of going concern.

Overview

Contingent liabilities are disclosed when the possibility of a future settlement of economic benefits is considered to be less than probable but more likely than remote. If the expected settlement of the liability becomes probable, a provision is recognised.

In the normal course of business, the Group is exposed to contingent liabilities in relation to claims litigation arising out of its insurance transactions and may be exposed to the possibility of contingent liabilities in relation to non-insurance litigation. Where items of this nature are known to exist, a provision would be made for amounts that are both probable and quantifiable. At year end, no material items of this nature are known to exist.


The Group carefully considers material events which occur after the balance date. No other matter or circumstance has arisen since 30 June 2020 that has significantly affected or may significantly affect:

i. the operations of the Group in future financial years, or

ii. the results of those operations in future financial years, or

iii. the state of affairs of the Group in future financial years.

Other than those discussed below.

The following events occurred after the reporting period did not require the financial statements to be adjusted:

Retirement Reward Plan

For the sixth consecutive year, having considered the financial position and projected outlook for Avant, the Board resolved to notionally contribute a further $25.5 million to the RRP in respect of the year ended 30 June 2020.

In addition, at that meeting, the Board also resolved to determine dividends and authorise payments for Retirement Reward Dividends totalling $11.3 million to eligible retiring members. These are the sixth dividends determined under the RRP, and this historically continues the tradition of being the first medical defence organisation in Australia to pay fully franked dividends to members.

At the request of the Group, Westpac Banking Corporation Limited has undertaken to pay on demand amounts up to $8.3 million (2019: $7.2 million) in respect of lease payments payable. This bank guarantee is secured by a fixed charge over the Group’s cash deposits.



58

Note 16. Summarised financial data of the ultimate parent entity

Overview

The Corporations Act 2001 requires the disclosure of summarised financial information for the ultimate parent entity, Avant Mutual Group Limited.

Statement of comprehensive income2020

$’million2019

$’million

Earned membership subscription revenues and fees 28.3 19.8

Interest income - 0.1

Dividends from subsidiary 9.5 8.5

Director related costs (1.0) (1.0)

General and administration expenses (16.2) (17.6)

Other income 4.3 4.0

Profit before income tax 24.9 13.8

Income tax expense - -

Profit for the year 24.9 13.8

Other comprehensive income for the year - -

Total comprehensive income for the year 24.9 13.8

Balance sheet

Current assets:


Receivables from related entity 38.7 28.6

Other receivables 8.7 7.3

Current tax assets - 4.3

Total current assets 47.6 40.8

Non-current assets:

Investments in controlled entities 528.6 528.6

Total non-current assets 528.6 528.6

Current liabilities:

Current tax liabilities 2.4 -

Payables to related entity 0.4 10.6

Other payables 2.3 2.6

Unearned income 20.9 21.4

Total current liabilities 26.0 34.6

Net Assets 550.2 534.8

Equity:

Reserves 508.6 508.6

Accumulated surpluses 41.6 26.2

Total Equity 550.2 534.8



59

Note 17. Investments in controlled entities

Overview

This section lists all of the Group’s controlled entities. The consolidated financial statements incorporate the assets and liabilities of all entities controlled by the Company as at 30 June 2020 and the results for the financial year then ended, or for the period during which control existed if the entity was acquired or disposed of during the financial year.


Control exists when the Group is exposed, or has rights to variable returns from its involvement with an entity and has the ability to affect those returns through its power over it. All transactions between controlled entities are eliminated in full.

Where control of an entity commences during a financial year, its results are included in the consolidated statement of comprehensive income from the date on which control is obtained. Where control of an entity ceases during a financial year, its results are included for that part of the year during which the control existed.

A change in ownership of a controlled entity without the gain or loss of control is accounted for as an equity transaction.

Name of entityCountry of

incorporationClass

of shares

Ownership interest

2020 % 2019 %

Avant Group Holdings Limited Australia Ordinary 100 100

The Medical Defence Association of Victoria Limited Australia Ordinary 100 100

Investments in controlled entities of Avant Group Holdings Limited

Avant Insurance Limited Australia Ordinary 100 100

The Doctors' Health Fund Pty Ltd Australia Ordinary 100 100

The Medical Defence Union Pty Ltd Australia Ordinary 100 100

United Medical Protection Pty Limited* Australia - - -

Doctors Financial Services Pty Limited Australia Ordinary 100 100

Avant Services Co. Pty Limited Australia Ordinary 100 100

MyPracticeManual Pty Ltd Australia Ordinary 100 100

Avant Foundation Limited** Australia - - -

Investments in controlled entities of MyPracticeManual Pty Ltd

Darjack Pty Limited Australia Ordinary 60 60

JRB Technologies Pty Ltd Australia Ordinary 55 55

Investments in controlled entities of Avant Insurance Limited

Avant Law Pty Limited Australia Ordinary 100 100

Investments in controlled entities of Avant Law Pty Limited

Avant Law (SA) Pty Limited Australia Ordinary 100 100

Investments in controlled entities of The Medical Defence Union Pty Ltd

Professional Insurance Australia Pty Ltd Australia Ordinary 100 100

*Avant Group Holdings Limited does not have any equity interests in this company as it is a member based entity limited by guarantee. Control is exercised by virtue of the directors of Avant Group Holdings Limited sitting on the Board of this entity.

**Avant Group Holdings Limited have 100% voting control.



60

Note 18. Related partiesKey management personnel

In addition to the Directors (as detailed in the Directors Report on page 1), the Managing director (MD) and those executives that report solely and directly to the MD are deemed key management personnel.

Remuneration

Information on remuneration of key management personnel is disclosed in Note 12.

Transactions with Directors

For the year ended 30 June 2020, member services provided by the Company were also available to all member Directors on the same terms and conditions available to other members. No member services were provided to the other key management personnel.

The Directors of Avant Group companies are able to purchase a DHF policy on the same terms and conditions as all other Avant staff, who currently receive a 25% subsidy.

The Avant Corporate Travel Insurance policy automatically covers Directors and accompanying family members for leisure travel more than 100 kilometres from their home.

Group structure

Up to 30 June 2020, the ultimate Australian parent entity within the Group was Avant Mutual Group Limited. Refer to Note 17 for the details and ownership interests of the controlled entities of the Company up to 30 June 2020.

Intercompany capital undertakings

Information on intercompany capital undertakings is disclosed in Note 7.

Related party transactions

All transactions between the parties and balances remaining between the parties were at normal terms and conditions and consisted of the following:

a) Transfers of funds between the parent entity and its controlled entities occur for day to day financing purposes.

b) The provision of management services by the controlled entity, AIL, for the Company with management fees of $12,516,765 (2019: $10,897,242) paid to the controlled entity.

c) At 30 June 2020, AIL is due to pay $5,000,189 (2019: receive $1,120,430) to Avant Law Pty Limited (“Avant Law”) for the settlement of inter-company transactions.

d) At 30 June 2020, AIL is due to pay $1,955,312 (2019: pay $1,376,491) to Avant Law (SA) Pty Limited (“Avant Law SA”) for the settlement of inter-company transactions.

e) At 30 June 2020, AIL is due to pay $10,175 (2019: pay $13,086) to The Medical Defence Association of Victoria Limited (‘MDAV’) for the settlement of inter-company transactions.

f ) At 30 June 2020, AIL is due to receive $607,417 (2019: receive $2,759,562) from AGHL for the settlement of inter-company transactions.

g) At 30 June 2020, AIL is due to pay $9,506,332 (2019: receive $8,560,460) from the Company for the settlement of inter-company transactions.

h) At 30 June 2020, AIL is due to receive $1,131,109 (2019: receive $753,509) from DHF for the settlement of inter-company transactions.

i) At 30 June 2020, AIL is due to receive $324,163 (2019: receive $654,739) from DFS for the settlement of inter-company transactions.

j) At 30 June 2020,AIL is due to receive $225,957 (2019: receive $1,845,621) from MyPracticeManual Pty Ltd (“MPM”) for the settlement of inter-company transactions.

k) At 30 June 2020, AIL is due to receive $669,210 (2019: receive $358,243) from JRB Technologies Pty Ltd (“MBP”) for the settlement of inter-company transactions.

l) At 30 June 2020, AGHL is due to pay $nil (2019: pay $1,377) to MDAV; due to pay $84,550 (2019: pay $84,550) to United Medical Protection Pty Limited (“UMP”); due to pay $2,792,301 (2019: pay $2,792,301) to The Medical Defence Union Pty Ltd (“MDU”); due to receive $14,704 (2019: pay $4,810,378) from MPM; due to pay $1,900,000 (2019: pay $2,117,796) to DFS for the settlement of inter-company transactions; due to pay $620,117 (2019: pay $344,750) to Avant Foundation for the settlement of inter-company transactions; due to pay $nil (2019: $3,000,000) to DHF for the settlement of capital injections.

m) As at 30 June 2020, the Company is due to receive $171,817 (2019: receive $2,927) from DHF; due to pay $296,392 (2019: pay $949,368) to MPM; due to pay $19,146 (2019: receive $58,301) to PIA; due to receive $376 (2019: receive $376) from UMP; due to pay $1,551,738 (2019:



61

Note 18. Related parties (continued)


pay $306,586) to Avant Law; due to pay $98,892 (2019: pay $773,488) to DFS; due to receive $26,787,943 (2019: receive $28,101,961) from AGHL; due to receive $3,109 (2019: receive $3,110) from MDU; due to receive $564,455 (2019: receive $412,947) from Avant Law SA for the settlement of inter-company transactions.

n) During the year ALAW declared and paid a dividend amounting $nil (2019: $9,850,000) to AIL.

o) During the year Avant Law SA declared $nil (2019: $900,000) dividend payable to ALAW.

p) During the year AGHL declared and paid a dividend amounting $9,500,000 (2019: $8,500,000) to the Company.

q) During the year DHF declared and paid a dividend amounting $nil (2019: $3,000,000) to AGHL.

Others

Andrew Boldeman, Managing Director, is also a director of Noble Oak Life Limited (an associate).

Peter Aroney, CEO of DHF is also a director of HAMBS. HAMBS provides the main software that supports DHF operations.

Martin Edwards, CEO of MPM, is also a director of Darjack Pty Limited and JRB Technologies Pty Ltd (subsidiaries of MPM).


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Note 19. Business combination


The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the:

• fair values of the assets transferred

• liabilities incurred to the former owners of the acquired business

• equity interests issued by the Group

• fair value of any asset or liability resulting from a contingent consideration arrangement, and

• fair value of any pre-existing equity interest in the subsidiary.

Acquisition-related costs are expensed as incurred.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. On an acquisition by acquisition basis, the group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets.

The excess of the:

• consideration transferred, and

• amount of any non-controlling interest in the acquired entity

over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the subsidiary acquired, the difference is recognised directly in profit or loss as a bargain purchase.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquire is remeasured to fair value at the acquisition date. Any gain or losses arising from such remeasurement is recognised in profit or loss.


a) Summary of acquisition

The Group didn’t acquire any subsidiaries during the current financial year ended 30 June 2020.

On 15 November 2018 MyPracticeManual Pty Limited acquired 55% of the issued share capital of JRB Technologies Pty Ltd.

On 18 March 2019 MyPracticeManual Pty Limited acquired 60% of the issued share capital of Darjack Pty Limited.

The acquisition of both entities is expected to provide enhancements to the existing products of the MyPracticeManual business by supporting and expanding the current technology stack, the new user interfaces, and significant back end enhancements. This provides us the foundations for the Group’s anticipated future growth, through greater scalability and the ability to plug new applications, including those provided by third parties.

JRB Technologies Pty Ltd

$’million

Darjack Pty Limited

$’millionTotal

$’million

Purchase consideration refer to note (b) on next page:

Cash paid 2.5 2.8 5.3

Contingent consideration 2.2 - 2.2

Total purchase consideration 4.7 2.8 7.5


63

Note 19. Business combination (continued)


$’million $’millionTotal

$’million

Cash and cash equivalents 2.4 0.7 3.1

Receivables - 0.4 0.4

Other assets - 0.3 0.3

Contingent receivable 1.5 - 1.5

Other liabilities - (0.2) (0.2)

Employee benefits payable - (0.1) (0.1)

Unearned subscription income - (0.7) (0.7)

Net identifiable assets acquired 3.9 0.4 4.3

Less: non-controlling interests (1.8) (0.2) (2.0)

Add: goodwill* 2.6 2.6 5.2

Net assets acquired 4.7 2.8 7.5

$’million $’millionTotal

$’million

Outflow of cash to acquire subsidiary, net of cash acquired:

Cash consideration 2.5 2.8 5.3

Less: cash balances acquired 2.4 0.7 3.1

Net outflow of cash – investing activities 0.1 2.1 2.2

a) Summary of acquisition (continued)

The assets and liabilities (at fair value) recognised as a result of the acquisition are as follows:

b) Purchase consideration – cash outflow

*The goodwill is attributable to the access to customers, software and associated technology, synergies with the current technology stack and this will provide future growth to the Group. It will not be deductible for tax purposes.

Significant estimate: contingent consideration

In the event that a certain pre-determined revenue or pre-determined number of subscribers of the messaging application are achieved by the subsidiary, JRB Technologies Pty Ltd (“MyBeepr”), for the next two years additional consideration of up to $4.8m will be payable in cash by My Practice Manual Pty Limited.

The expected undiscounted amount payable under the agreement is between $0-$2.5m. The fair value of the contingent consideration of $2.2m was estimated by calculating the present value of the future expected cash flows. The estimate was based on the discount rate of 7% and assumed probability-adjusted revenue or number of subscribers of MyBeepr of between $1.9m-$2.5m.

A contingent consideration of $2.2m was recognised at acquisition with the first $0.7m payable to the Founders and other shareholders of MyBeepr and $1.5m payable to MyBeepr.

Acquisition-related costs

Acquisition related costs of $0.2m that were not directly attributable to the issue of shares are included in other expenses in profit or loss and in operating cash flows in the statement of cash flows.


64

Directors’ declarationIn the Directors’ opinion:

a) the financial statements and notes set out on pages 8 to 63 are in accordance with the Corporations Act 2001, including:

i. complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and

ii. giving a true and fair view of the Company’s and Group’s financial position as at 30 June 2020 and of their performance for the financial year ended on that date; and

b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

Note 1(a) confirms that the financial statements also comply with International Financial Reporting Standards as issued by the International Accounting Standards Board.

This declaration is made in accordance with a resolution of the Directors.

Dr Beverley Rowbotham AO Chair Sydney 3 September 2020


65

Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Organisation.

Deloitte Touche Tohmatsu ABN 74 490 121 060 Grosvenor Place 225 George Street Sydney NSW 2000 PO Box N250 Grosvenor Place Sydney NSW 1220 Australia Tel: +61 2 9322 7000 Fax: +61 2 9322 7001 www.deloitte.com.au

Independent Auditor’s Report to the Members of Avant Mutual Group Limited

Opinion We have audited the financial report of Avant Mutual Group Limited and its subsidiaries (the “Group”) which comprises the consolidated balance sheet as at 30 June 2020, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, and the directors’ declaration. In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2020 and of their

financial performance for the year then ended; and

(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001. Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional & Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of the Group, would be in the same terms if given to the directors as at the time of this auditor’s report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Information The directors are responsible for the other information. The other information comprises the information included in the Directors’ Report included in the annual financial report for the year ended 30 June 2020, but does not include the financial report and our auditor’s report thereon.


66

Our opinion on the financial report does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the Directors for the Financial Report The directors of the Group are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Report Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to

events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the financial report represents the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the Group’s audit. We remain solely responsible for our audit opinion.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

DELOITTE TOUCHE TOHMATSU

Stuart Alexander Partner Chartered Accountants Sydney, 3 September 2020

MJN465 09/20 (DT-1626)

Contact us

Australian Capital TerritoryUnit 10, George Turner House, 11 McKay Gardens Turner ACT 2612 Telephone 03 9026 5961 Fax 03 8673 5015

New South WalesLevel 6, Darling Park 3, 201 Sussex Street Sydney NSW 2000 PO Box 746, Queen Victoria Building NSW 1230 Telephone 02 9260 9000 Fax 02 9261 2921

QueenslandLevel 18, 345 Queen Street Brisbane QLD 4000 GPO Box 5252, Brisbane QLD 4001 Telephone 07 3309 6800 Fax 07 3309 6850

South AustraliaLevel 1, 195 Melbourne Street North Adelaide SA 5006 PO Box 1263, Adelaide SA 5001 Telephone 08 7071 9800 Fax 08 7071 5250

TasmaniaSuite 4, 147 Davey Street Hobart TAS 7000 PO Box 895, Hobart TAS 7001 Telephone 03 6223 5400 Fax 1800 228 268

VictoriaLevel 36, Melbourne Central Tower, 360 Elizabeth Street Melbourne VIC 3000 GPO Box 1606, Melbourne VIC 3001 Telephone 03 9026 5900 Fax 03 8673 5015

Western AustraliaLevel 1, Schiavello,1315 Hay Street West Perth WA 6005 PO Box 950, West Perth WA 6872 Telephone 08 6189 5700 Fax 08 6189 5713

Avant Mutual Group Limited

ABN 58 123 154 898

1800 128 268 avant.org.au

financial report 2019/2020 - avant

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